With EPS Growth And More, Dr. Reddy's Laboratories (NSE:DRREDDY) Makes An Interesting Case

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Dr. Reddy's Laboratories (NSE:DRREDDY). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

Check out our latest analysis for Dr. Reddy's Laboratories

How Fast Is Dr. Reddy's Laboratories Growing?

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That means EPS growth is considered a real positive by most successful long-term investors. Dr. Reddy's Laboratories' shareholders have have plenty to be happy about as their annual EPS growth for the last 3 years was 40%. While that sort of growth rate isn't sustainable for long, it certainly catches the eye of prospective investors.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. EBIT margins for Dr. Reddy's Laboratories remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 12% to ₹300b. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Dr. Reddy's Laboratories' future EPS 100% free.

Are Dr. Reddy's Laboratories Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a ₹1.1t company like Dr. Reddy's Laboratories. But we are reassured by the fact they have invested in the company. Notably, they have an enviable stake in the company, worth ₹302b. Coming in at 27% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. So there is opportunity here to invest in a company whose management have tangible incentives to deliver.

Does Dr. Reddy's Laboratories Deserve A Spot On Your Watchlist?

Dr. Reddy's Laboratories' earnings per share have been soaring, with growth rates sky high. This level of EPS growth does wonders for attracting investment, and the large insider investment in the company is just the cherry on top. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. Based on the sum of its parts, we definitely think its worth watching Dr. Reddy's Laboratories very closely. We should say that we've discovered 1 warning sign for Dr. Reddy's Laboratories that you should be aware of before investing here.

Although Dr. Reddy's Laboratories certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of Indian companies that not only boast of strong growth but have strong insider backing.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.