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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. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.
So if you're like me, you might be more interested in profitable, growing companies, like Dev Information Technology (NSE:DEVIT). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
How Quickly Is Dev Information Technology Increasing Earnings Per Share?
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. It's no surprise, then, that I like to invest in companies with EPS growth. We can see that in the last three years Dev Information Technology grew its EPS by 13% per year. That's a good rate of growth, if it can be sustained.
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 we note Dev Information Technology's EBIT margins were flat over the last year, revenue grew by a solid 12% to ₹776m. That's a real positive.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
Dev Information Technology isn't a huge company, given its market capitalization of ₹486m. That makes it extra important to check on its balance sheet strength.
Are Dev Information Technology Insiders Aligned With All Shareholders?
Personally, I like to see high insider ownership of a company, since it suggests that it will be managed in the interests of shareholders. So as you can imagine, the fact that Dev Information Technology insiders own a significant number of shares certainly appeals to me. Indeed, with a collective holding of 75%, company insiders are in control and have plenty of capital behind the venture. To me this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. Valued at only ₹486m Dev Information Technology is really small for a listed company. That means insiders only have ₹362m worth of shares, despite the large proportional holding. That might not be a huge sum but it should be enough to keep insiders motivated!
Does Dev Information Technology Deserve A Spot On Your Watchlist?
One positive for Dev Information Technology is that it is growing EPS. That's nice to see. If that's not enough on its own, there is also the rather notable levels of insider ownership. The combination sparks joy for me, so I'd consider keeping the company on a watchlist. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if Dev Information Technology is trading on a high P/E or a low P/E, relative to its industry.
Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.