If You Like EPS Growth Then Check Out HCL Technologies (NSE:HCLTECH) Before It's Too Late

By
Simply Wall St
Published
May 13, 2022
NSEI:HCLTECH
Source: Shutterstock

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. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like HCL Technologies (NSE:HCLTECH). 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. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

View our latest analysis for HCL Technologies

HCL Technologies's Earnings Per Share Are Growing.

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. HCL Technologies managed to grow EPS by 8.4% per year, over three years. That's a good rate of growth, if it can be sustained.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. HCL Technologies maintained stable EBIT margins over the last year, all while growing revenue 13% to US$11b. That's a real positive.

In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.

earnings-and-revenue-history
NSEI:HCLTECH Earnings and Revenue History May 13th 2022

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for HCL Technologies's future profits.

Are HCL Technologies Insiders Aligned With All Shareholders?

Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

In the last year insider at HCL Technologies were both selling and buying shares; but happily, as a group they spent US$14m more on stock, than they netted from selling it. On balance, that's a good sign. Zooming in, we can see that the biggest insider purchase was by CEO, MD & Director C. VijayaKumar for ₹70m worth of shares, at about ₹1,161 per share.

On top of the insider buying, it's good to see that HCL Technologies insiders have a valuable investment in the business. To be specific, they have US$1.6b worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 0.06% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

Should You Add HCL Technologies To Your Watchlist?

One positive for HCL Technologies is that it is growing EPS. That's nice to see. Better yet, insiders are significant shareholders, and have been buying more shares. That makes the company a prime candidate for my watchlist - and arguably a research priority. Even so, be aware that HCL Technologies is showing 1 warning sign in our investment analysis , you should know about...

There are plenty of other companies that have insiders buying up shares. So if you like the sound of HCL Technologies, you'll probably love this free list of growing companies that insiders are buying.

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

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