Do Dexxos Participações' (BVMF:DEXP3) Earnings Warrant Your Attention?

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and 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 can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

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 Dexxos Participações (BVMF:DEXP3). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Dexxos Participações with the means to add long-term value to shareholders.

Our analysis indicates that DEXP3 is potentially undervalued!

Dexxos Participações' Improving Profits

Over the last three years, Dexxos Participações has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. So it would be better to isolate the growth rate over the last year for our analysis. It's good to see that Dexxos Participações' EPS has grown from R$1.61 to R$1.85 over twelve months. That's a 14% gain; respectable growth in the broader scheme of things.

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. Dexxos Participações maintained stable EBIT margins over the last year, all while growing revenue 64% to R$2.2b. 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. For finer detail, click on the image.

Since Dexxos Participações is no giant, with a market capitalisation of R$774m, you should definitely check its cash and debt before getting too excited about its prospects.

Are Dexxos Participações Insiders Aligned With All Shareholders?

Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So those who are interested in Dexxos Participações will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. In fact, they own 41% of the shares, making insiders a very influential shareholder group. Those who are comforted by solid insider ownership like this should be happy, as it implies that those running the business are genuinely motivated to create shareholder value. With that sort of holding, insiders have about R$317m riding on the stock, at current prices. That's nothing to sneeze at!

Does Dexxos Participações Deserve A Spot On Your Watchlist?

One important encouraging feature of Dexxos Participações is that it is growing profits. To add an extra spark to the fire, significant insider ownership in the company is another highlight. That combination is very appealing. So yes, we do think the stock is worth keeping an eye on. It is worth noting though that we have found 5 warning signs for Dexxos Participações (2 are significant!) that you need to take into consideration.

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.