Here's Why We Think Direcional Engenharia (BVMF:DIRR3) Is Well Worth Watching

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. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

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 Direcional Engenharia (BVMF:DIRR3). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

View our latest analysis for Direcional Engenharia

Direcional Engenharia's Earnings Per Share Are Growing

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Recognition must be given to the that Direcional Engenharia has grown EPS by 41% per year, over the last three years. 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. The good news is that Direcional Engenharia is growing revenues, and EBIT margins improved by 3.0 percentage points to 19%, over the last year. Both of which are great metrics to check off for potential growth.

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 Direcional Engenharia's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Direcional Engenharia 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 Direcional Engenharia shares worth a considerable sum. To be specific, they have R$130m worth of shares. That's a lot of money, and no small incentive to work hard. Even though that's only about 3.5% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Should You Add Direcional Engenharia To Your Watchlist?

Direcional Engenharia's earnings per share have been soaring, with growth rates sky high. That sort of growth is nothing short of eye-catching, and the large investment held by insiders should certainly brighten the view of the company. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So at the surface level, Direcional Engenharia is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. Before you take the next step you should know about the 2 warning signs for Direcional Engenharia that we have uncovered.

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.