Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. 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. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Digital Turbine (NASDAQ:APPS). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
How Quickly Is Digital Turbine 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. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. It certainly is nice to see that Digital Turbine has managed to grow EPS by 31% per year over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming.
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 Digital Turbine did well to grow revenue over the last year, EBIT margins were dampened at the same time. So it seems the future may hold further growth, especially if EBIT margins can remain steady.
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.
While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Digital Turbine?
Are Digital Turbine Insiders Aligned With All Shareholders?
It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. 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.
While we did see insider selling of Digital Turbine stock in the last year, one single insider spent plenty more buying. Specifically the Independent Chairman of the Board, Robert Deutschman, spent US$475k, paying about US$31.66 per share. That certainly piques our interest.
The good news, alongside the insider buying, for Digital Turbine bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold US$35m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. While their ownership only accounts for 3.6%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.
Does Digital Turbine Deserve A Spot On Your Watchlist?
If you believe that share price follows earnings per share you should definitely be delving further into Digital Turbine's strong EPS growth. Better still, insiders own a large chunk of the company and one has even been buying more shares. Astute investors will want to keep this stock on watch. Before you take the next step you should know about the 3 warning signs for Digital Turbine that we have uncovered.
The good news is that Digital Turbine is not the only growth stock with insider buying. Here's a list of them... 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.
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