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. 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.
How Quickly Is Descartes Systems Group 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. Descartes Systems Group's shareholders have have plenty to be happy about as their annual EPS growth for the last 3 years was 38%. Growth that fast may well be fleeting, but it should be more than enough to pique the interest of the wary stock pickers.
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 24% to 27%, and revenue is growing. That's great to see, on both counts.
You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.
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 Descartes Systems Group's future profits.
Are Descartes Systems Group Insiders Aligned With All Shareholders?
Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
While Descartes Systems Group insiders did net US$362k selling stock over the last year, they invested US$1.1m, a much higher figure. An optimistic sign for those with Descartes Systems Group in their watchlist. It is also worth noting that it was Chief Financial Officer Allan Brett who made the biggest single purchase, worth CA$879k, paying CA$87.89 per share.
Along with the insider buying, another encouraging sign for Descartes Systems Group is that insiders, as a group, have a considerable shareholding. As a matter of fact, their holding is valued at US$24m. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 0.3% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.
Is Descartes Systems Group Worth Keeping An Eye On?
Descartes Systems Group's earnings have taken off in quite an impressive fashion. Just as heartening; insiders both own and are buying more stock. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Descartes Systems Group belongs near the top of your watchlist. Another important measure of business quality not discussed here, is return on equity (ROE). Click on this link to see how Descartes Systems Group shapes up to industry peers, when it comes to ROE.
The good news is that Descartes Systems Group 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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