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The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. 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. 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 Dow (NYSE:DOW). 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.
How Quickly Is Dow 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. Dow's shareholders have have plenty to be happy about as their annual EPS growth for the last 3 years was 50%. Growth that fast may well be fleeting, but it should be more than enough to pique the interest of the wary stock pickers.
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. The good news is that Dow is growing revenues, and EBIT margins improved by 8.4 percentage points to 16%, over the last year. Ticking those two boxes is a good sign of growth, in our book.
You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Dow's future profits.
Are Dow 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. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
Shareholders in Dow will be more than happy to see insiders committing themselves to the company, spending US$572k on shares in just twelve months. This, combined with the lack of sales from insiders, should be a great signal for shareholders in what's to come. It is also worth noting that it was Chairman & CEO James Fitterling who made the biggest single purchase, worth US$280k, paying US$56.03 per share.
The good news, alongside the insider buying, for Dow bulls is that insiders (collectively) have a meaningful investment in the stock. With a whopping US$52m worth of shares as a group, insiders have plenty riding on the company's success. That's certainly enough to let shareholders know that management will be very focussed on long term growth.
Is Dow Worth Keeping An Eye On?
Dow's earnings per share growth have been climbing higher at an appreciable rate. 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 Dow deserves timely attention. It is worth noting though that we have found 4 warning signs for Dow (1 is significant!) that you need to take into consideration.
The good news is that Dow 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.