Data#3 (ASX:DTL) Ticks All The Boxes When It Comes To Earnings Growth

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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Data#3 (ASX:DTL). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Data#3 with the means to add long-term value to shareholders.

Check out the opportunities and risks within the AU IT industry.

How Quickly Is Data#3 Increasing Earnings Per Share?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That makes EPS growth an attractive quality for any company. Impressively, Data#3 has grown EPS by 18% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. While we note Data#3 achieved similar EBIT margins to last year, revenue grew by a solid 12% 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. 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?

It's a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market. Shareholders will be pleased by the fact that insiders own Data#3 shares worth a considerable sum. As a matter of fact, their holding is valued at AU$37m. That shows significant buy-in, and may indicate conviction in the business strategy. While their ownership only accounts for 3.7%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. For companies with market capitalisations between AU$596m and AU$2.4b, like Data#3, the median CEO pay is around AU$1.6m.

Data#3's CEO took home a total compensation package worth AU$1.1m in the year leading up to June 2022. That comes in below the average for similar sized companies and seems pretty reasonable. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Should You Add Data#3 To Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Data#3's strong EPS growth. If you need more convincing beyond that EPS growth rate, don't forget about the reasonable remuneration and the high insider ownership. Everyone has their own preferences when it comes to investing but it definitely makes Data#3 look rather interesting indeed. Still, you should learn about the 2 warning signs we've spotted with Data#3 (including 1 which makes us a bit uncomfortable).

The beauty of investing is that you can invest in almost any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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.