Yahoo Finance We Ran A Stock Scan For Earnings Growth And Data#3 (ASX:DTL) Passed With Ease
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 as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
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 Data#3 (ASX:DTL). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.
Check out our latest analysis for Data#3
Data#3's Earnings Per Share Are Growing
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That makes EPS growth an attractive quality for any company. Impressively, Data#3 has grown EPS by 19% per year, compound, in the last three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.
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. Data#3 maintained stable EBIT margins over the last year, all while growing revenue 12% to AU$2.4b. That's encouraging news for the company!
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 Data#3's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Data#3 Insiders Aligned With All Shareholders?
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
Insiders both bought and sold Data#3 shares in the last year, but the good news is they spent AU$8.7k more buying than they netted selling. When you weigh that up, it is a mild positive, indicating increased alignment between shareholders and management.
On top of the insider buying, it's good to see that Data#3 insiders have a valuable investment in the business. As a matter of fact, their holding is valued at AU$41m. That shows significant buy-in, and may indicate conviction in the business strategy. While their ownership only accounts for 3.7%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.
Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. That's because on our analysis the CEO, Laurence Baynham, is paid less than the median for similar sized companies. For companies with market capitalisations between AU$598m and AU$2.4b, like Data#3, the median CEO pay is around AU$1.6m.
The Data#3 CEO received AU$1.1m in compensation for the year ending June 2022. That comes in below the average for similar sized companies and seems pretty reasonable. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Does Data#3 Deserve A Spot On Your Watchlist?
If you believe that share price follows earnings per share you should definitely be delving further into Data#3's strong EPS growth. Not only that, but we can see that insiders both own a lot of, and are buying more shares in the company. These things considered, this is one stock worth watching. What about risks? Every company has them, and we've spotted 1 warning sign for Data#3 you should know about.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Data#3, you'll probably love this free list of growing companies that insiders are buying.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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.
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