Should You Be Adding Deterra Royalties (ASX:DRR) To Your Watchlist Today?

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. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Deterra Royalties (ASX:DRR). 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.

See our latest analysis for Deterra Royalties

Deterra Royalties' Earnings Per Share Are Growing

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That makes EPS growth an attractive quality for any company. Deterra Royalties' shareholders have have plenty to be happy about as their annual EPS growth for the last 3 years was 38%. While that sort of growth rate isn't sustainable for long, it certainly catches the eye of prospective investors.

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. EBIT margins for Deterra Royalties remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 55% to AU$269m. 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.

Fortunately, we've got access to analyst forecasts of Deterra Royalties' future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Deterra Royalties Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

It's nice to see that there have been no reports of any insiders selling shares in Deterra Royalties in the previous 12 months. With that in mind, it's heartening that Jason Neal, the Independent Non-Executive Director of the company, paid AU$23k for shares at around AU$4.58 each. Decent buying like this could be a sign for shareholders here; management sees the company as undervalued.

Recent insider purchases of Deterra Royalties stock is not the only way management has kept the interests of the general public shareholders in mind. To be specific, the CEO is paid modestly when compared to company peers of the same size. The median total compensation for CEOs of companies similar in size to Deterra Royalties, with market caps between AU$1.5b and AU$4.8b, is around AU$2.4m.

The Deterra Royalties CEO received AU$1.7m in compensation for the year ending June 2022. That seems pretty reasonable, especially given it's below the median for similar sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Is Deterra Royalties Worth Keeping An Eye On?

Deterra Royalties' earnings have taken off in quite an impressive fashion. Better yet, we can observe insider buying and the chief executive pay looks reasonable. The strong EPS growth suggests Deterra Royalties may be at an inflection point. If so, then its potential for further gains probably merit a spot on your watchlist. Still, you should learn about the 2 warning signs we've spotted with Deterra Royalties.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Deterra Royalties, 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.

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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.