Does Tech Mahindra (NSE:TECHM) Deserve A Spot On Your Watchlist?

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Tech Mahindra (NSE:TECHM). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Tech Mahindra with the means to add long-term value to shareholders.

Check out our latest analysis for Tech Mahindra

Tech Mahindra'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) outcomes. That makes EPS growth an attractive quality for any company. Over the last three years, Tech Mahindra has grown EPS by 7.2% per year. That might not be particularly high growth, but it does show that per-share earnings are moving steadily in the right direction.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. EBIT margins for Tech Mahindra remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 21% to ₹472b. That's a real positive.

In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.

Fortunately, we've got access to analyst forecasts of Tech Mahindra's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Tech Mahindra Insiders Aligned With All Shareholders?

Since Tech Mahindra has a market capitalisation of ₹970b, we wouldn't expect insiders to hold a large percentage of shares. But we do take comfort from the fact that they are investors in the company. Indeed, they have a considerable amount of wealth invested in it, currently valued at ₹10b. This suggests that leadership will be very mindful of shareholders' interests when making decisions!

Should You Add Tech Mahindra To Your Watchlist?

One positive for Tech Mahindra is that it is growing EPS. That's nice to see. If that's not enough on its own, there is also the rather notable levels of insider ownership. That combination is very appealing. So yes, we do think the stock is worth keeping an eye on. It's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Tech Mahindra , and understanding this should be part of your investment process.

The beauty of investing is that you can invest in almost any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.

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.