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Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.
So if you're like me, you might be more interested in profitable, growing companies, like HDFC Bank (NSE:HDFCBANK). While profit is not necessarily a social good, it's easy to admire a business than can consistently produce it. 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.
See our latest analysis for HDFC Bank
How Fast Is HDFC Bank 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. That means EPS growth is considered a real positive by most successful long-term investors. Impressively, HDFC Bank has grown EPS by 18% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.
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. I note that HDFC Bank's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. While we note HDFC Bank's EBIT margins were flat over the last year, revenue grew by a solid 18% to ₹620b. That's progress.
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.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of HDFC Bank's forecast profits?
Are HDFC Bank Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a ₹6.7t company like HDFC Bank. But we do take comfort from the fact that they are investors in the company. Indeed, they have a glittering mountain of wealth invested in it, currently valued at ₹73b. I would find that kind of skin in the game quite encouraging, if I owned shares, since it would ensure that the leaders of the company would also experience my success, or failure, with the stock.