Here's Why We Think Tata Consultancy Services (NSE:TCS) Is Well Worth Watching

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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

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 Tata Consultancy Services (NSE:TCS). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Tata Consultancy Services with the means to add long-term value to shareholders.

Check out our latest analysis for Tata Consultancy Services

Tata Consultancy Services' Earnings Per Share Are Growing

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That means EPS growth is considered a real positive by most successful long-term investors. Over the last three years, Tata Consultancy Services has grown EPS by 14% per year. That's a pretty good rate, if the company can sustain it.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. EBIT margins for Tata Consultancy Services remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 6.8% to ₹2.4t. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Tata Consultancy Services' forecast profits?

Are Tata Consultancy Services Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a ₹14t company like Tata Consultancy Services. But we are reassured by the fact they have invested in the company. Indeed, they hold ₹1.6b worth of its stock. That's a lot of money, and no small incentive to work hard. Even though that's only about 0.01% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Is Tata Consultancy Services Worth Keeping An Eye On?

As previously touched on, Tata Consultancy Services is a growing business, which is encouraging. If that's not enough on its own, there is also the rather notable levels of insider ownership. The combination definitely favoured by investors so consider keeping the company on a watchlist. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if Tata Consultancy Services is trading on a high P/E or a low P/E, relative to its industry.

While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in IN with promising growth potential and insider confidence.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com