Here’s Why We Think Tata Consultancy Services (NSE:TCS) Might Deserve Your Attention Today
It’s common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. 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. 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.
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.
How Quickly Is Tata Consultancy Services Increasing Earnings Per Share?
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. We can see that in the last three years Tata Consultancy Services grew its EPS by 15% per year. That growth rate is fairly good, assuming the company can keep it up.
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. While we note Tata Consultancy Services achieved similar EBIT margins to last year, revenue grew by a solid 14% to ₹2.4t. That’s a real positive.
The chart below shows how the company’s bottom and top lines have progressed over time. Click on the chart to see the exact numbers.
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 Tata Consultancy Services’ future EPS 100% free.
Are Tata Consultancy Services Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a ₹13t company like Tata Consultancy Services. But we are reassured by the fact they have invested in the company. Indeed, they hold ₹1.5b worth of its stock. This considerable investment should help drive long-term value in the business. 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. That combination is very appealing. So yes, we do think the stock is worth keeping an eye on. Now, you could try to make up your mind on Tata Consultancy Services by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.
Although Tata Consultancy Services certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with insider buying, then check out this handpicked selection of Indian companies that not only boast of strong growth but have also seen recent insider buying..
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
Valuation is complex, but we’re helping make it simple.
Find out whether Tata Consultancy Services is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.