I Ran A Stock Scan For Earnings Growth And Torrent Pharmaceuticals (NSE:TORNTPHARM) Passed With Ease

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

In contrast to all that, I prefer to spend time on companies like Torrent Pharmaceuticals (NSE:TORNTPHARM), which has not only revenues, but also profits. Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

Check out our latest analysis for Torrent Pharmaceuticals

Torrent Pharmaceuticals's Earnings Per Share Are Growing.

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. It's no surprise, then, that I like to invest in companies with EPS growth. It certainly is nice to see that Torrent Pharmaceuticals has managed to grow EPS by 23% per year over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). This approach makes Torrent Pharmaceuticals look pretty good, on balance; although revenue is flattish, EBIT margins improved from 19% to 23% in the last year. That's something to smile about.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future Torrent Pharmaceuticals EPS 100% free.

Are Torrent Pharmaceuticals Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

In twelve months, insiders sold -₹556k worth of Torrent Pharmaceuticals shares. On the other hand, Vice President of Projects H. Guttikar paid ₹2.2m for shares, at a price of about ₹2,716 per share. And that's a reason to be optimistic.

Along with the insider buying, another encouraging sign for Torrent Pharmaceuticals is that insiders, as a group, have a considerable shareholding. Given insiders own a small fortune of shares, currently valued at ₹4.0b, they have plenty of motivation to push the business to succeed. This should keep them focused on creating long term value for shareholders.

Should You Add Torrent Pharmaceuticals To Your Watchlist?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Torrent Pharmaceuticals's strong EPS growth. The cranberry sauce on the turkey is that insiders own a bunch of shares, and one has been buying more. So I do think this is one stock worth watching. It is worth noting though that we have found 2 warning signs for Torrent Pharmaceuticals that you need to take into consideration.

As a growth investor I do like to see insider buying. But Torrent Pharmaceuticals isn't the only one. You can see a a free list of them here.

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. 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.
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