Yahoo Finance Here's Why We Think Data#3 (ASX:DTL) Is Well Worth Watching
Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
In contrast to all that, I prefer to spend time on companies like Data#3 (ASX:DTL), which has not only revenues, but also profits. While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
Check out our latest analysis for Data#3
How Quickly Is Data#3 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). That means EPS growth is considered a real positive by most successful long-term investors. We can see that in the last three years Data#3 grew its EPS by 15% per year. That growth rate is fairly good, assuming the company can keep it up.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Data#3 maintained stable EBIT margins over the last year, all while growing revenue 15% to AU$1.6b. That's progress.
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 Data#3's future profits.
Are Data#3 Insiders Aligned With All Shareholders?
Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. 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.
We note that Data#3 insiders spent AU$255k on stock, over the last year; in contrast, we didn't see any selling. That's nice to see, because it suggests insiders are optimistic. We also note that it was the MD, CEO & Executive Director, Laurence Baynham, who made the biggest single acquisition, paying AU$201k for shares at about AU$5.86 each.
The good news, alongside the insider buying, for Data#3 bulls is that insiders (collectively) have a meaningful investment in the stock. To be specific, they have AU$34m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 3.9% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
Should You Add Data#3 To Your Watchlist?
One important encouraging feature of Data#3 is that it is growing profits. On top of that, we've seen insiders buying shares even though they already own plenty. To me, that all makes it well worth a spot on your watchlist, as well as continuing research. Still, you should learn about the 2 warning signs we've spotted with Data#3 .
As a growth investor I do like to see insider buying. But Data#3 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.
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. 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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