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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Domino's Pizza Enterprises (ASX:DMP). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
Domino's Pizza Enterprises's Earnings Per Share Are Growing.
As one of my mentors once told me, share price follows earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. Over the last three years, Domino's Pizza Enterprises has grown EPS by 15% per year. That's a pretty good rate, if the company can sustain it.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. While we note Domino's Pizza Enterprises's EBIT margins were flat over the last year, revenue grew by a solid 16% to AU$2.2b. That's progress.
You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Domino's Pizza Enterprises?
Are Domino's Pizza Enterprises 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. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
It's good to see Domino's Pizza Enterprises insiders walking the walk, by spending AU$288k on shares in just twelve months. And when you consider that there was no insider selling, you can understand why shareholders might believe that lady luck will grace this business. We also note that it was the Independent Non-Executive Director, Tony Peake, who made the biggest single acquisition, paying AU$191k for shares at about AU$137 each.
Along with the insider buying, another encouraging sign for Domino's Pizza Enterprises is that insiders, as a group, have a considerable shareholding. Notably, they have an enormous stake in the company, worth AU$552m. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!
Should You Add Domino's Pizza Enterprises To Your Watchlist?
One positive for Domino's Pizza Enterprises is that it is growing EPS. That's nice to see. 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. It is worth noting though that we have found 2 warning signs for Domino's Pizza Enterprises that you need to take into consideration.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Domino's Pizza Enterprises, you'll probably love this free list of growing companies that insiders are buying.
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. 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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