Does Descartes Systems Group (TSE:DSG) Deserve A Spot On Your Watchlist?
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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Descartes Systems Group (TSE:DSG). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
View our latest analysis for Descartes Systems Group
How Fast Is Descartes Systems Group 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. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. To the delight of shareholders, Descartes Systems Group has achieved impressive annual EPS growth of 39%, compound, over the last three years. That sort of growth rarely ever lasts long, but it is well worth paying attention to when it happens.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. Descartes Systems Group shareholders can take confidence from the fact that EBIT margins are up from 26% to 28%, and revenue is growing. That's great to see, on both counts.
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.
Fortunately, we've got access to analyst forecasts of Descartes Systems Group's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Descartes Systems Group 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. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
Not only did Descartes Systems Group insiders refrain from selling stock during the year, but they also spent US$221k buying it. This is a good look for the company as it paints an optimistic picture for the future. Zooming in, we can see that the biggest insider purchase was by Independent Director Sandra Hanington for CA$150k worth of shares, at about CA$91.00 per share.
On top of the insider buying, it's good to see that Descartes Systems Group insiders have a valuable investment in the business. Indeed, they hold US$29m worth of its stock. This considerable investment should help drive long-term value in the business. Despite being just 0.3% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
Is Descartes Systems Group Worth Keeping An Eye On?
Descartes Systems Group's earnings per share have been soaring, with growth rates sky high. What's more, insiders own a significant stake in the company and have been buying more shares. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Descartes Systems Group deserves timely attention. Once you've identified a business you like, the next step is to consider what you think it's worth. And right now is your chance to view our exclusive discounted cashflow valuation of Descartes Systems Group. You might benefit from giving it a glance today.
Keen growth investors love to see insider buying. Thankfully, Descartes Systems Group isn't the only one. You can see a a free list of them here.
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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