If EPS Growth Is Important To You, DATA Communications Management (TSE:DCM) Presents An Opportunity

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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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 DATA Communications Management (TSE:DCM). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

Check out our latest analysis for DATA Communications Management

How Fast Is DATA Communications Management Growing Its Earnings Per Share?

In business, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS) performance. So a growing EPS generally brings attention to a company in the eyes of prospective investors. Commendations have to be given in seeing that DATA Communications Management grew its EPS from CA$0.036 to CA$0.32, in one short year. When you see earnings grow that quickly, it often means good things ahead for the company. This could point to the business hitting a point of inflection.

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. DATA Communications Management shareholders can take confidence from the fact that EBIT margins are up from 5.7% to 9.9%, and revenue is growing. Both of which are great metrics to check off for potential growth.

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.

DATA Communications Management isn't a huge company, given its market capitalisation of CA$127m. That makes it extra important to check on its balance sheet strength.

Are DATA Communications Management Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. Because often, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

It's good to see DATA Communications Management insiders walking the walk, by spending CA$296k on shares in just twelve months. When you contrast that with the complete lack of sales, it's easy for shareholders to be brimming with joyful expectancy. We also note that it was the Independent Vice Chairman of the Board, Gregory Cochrane, who made the biggest single acquisition, paying CA$270k for shares at about CA$1.35 each.

The good news, alongside the insider buying, for DATA Communications Management bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold CA$35m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. As a percentage, this totals to 27% of the shares on issue for the business, an appreciable amount considering the market cap.

Does DATA Communications Management Deserve A Spot On Your Watchlist?

DATA Communications Management's earnings per share growth have been climbing higher at an appreciable rate. What's more, insiders own a significant stake in the company and have been buying more shares. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe DATA Communications Management deserves timely attention. We don't want to rain on the parade too much, but we did also find 2 warning signs for DATA Communications Management that you need to be mindful of.

The good news is that DATA Communications Management is not the only growth stock with insider buying. Here's a list of them... 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.