With EPS Growth And More, Data#3 (ASX:DTL) Makes An Interesting Case

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. 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 are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

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 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.

View our latest analysis for Data#3

Data#3's Earnings Per Share Are Growing

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That makes EPS growth an attractive quality for any company. Impressively, Data#3 has grown EPS by 19% per year, compound, in the last three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.

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. EBIT margins for Data#3 remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 12% to AU$2.4b. That's encouraging news for the company!

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.

Fortunately, we've got access to analyst forecasts of Data#3's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Data#3 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. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

Data#3 insiders both bought and sold shares over the last twelve months, but they did end up spending AU$8.7k more on stock than they received from selling it. At face value we can consider this a fairly encouraging sign for the company.

On top of the insider buying, it's good to see that Data#3 insiders have a valuable investment in the business. As a matter of fact, their holding is valued at AU$42m. That's a lot of money, and no small incentive to work hard. Despite being just 3.7% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. The cherry on top is that the CEO, Laurence Baynham is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalisations between AU$593m 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 is actually below the median for CEO's of similarly sized companies. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Is Data#3 Worth Keeping An Eye On?

You can't deny that Data#3 has grown its earnings per share at a very impressive rate. That's attractive. Not only that, but we can see that insiders both own a lot of, and are buying more shares in the company. Astute investors will want to keep this stock on watch. Of course, identifying quality businesses is only half the battle; investors need to know whether the stock is undervalued. So you might want to consider this free discounted cashflow valuation of Data#3.

Keen growth investors love to see insider buying. Thankfully, 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.

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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.