Should You Be Adding Descartes Systems Group (TSE:DSG) To Your Watchlist Today?

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 are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Descartes Systems Group (TSE:DSG). 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 Descartes Systems Group

Descartes Systems Group'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. Recognition must be given to the that Descartes Systems Group has grown EPS by 38% per year, over the last three years. That sort of growth rarely ever lasts long, but it is well worth paying attention to when it happens.

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. While we note Descartes Systems Group achieved similar EBIT margins to last year, revenue grew by a solid 14% to US$527m. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

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 Descartes Systems Group's future profits.

Are Descartes Systems Group 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. 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.

Although we did see some insider selling (worth US$1.0m) this was overshadowed by a mountain of buying, totalling US$3.4m in just one year. This bodes well for Descartes Systems Group as it highlights the fact that those who are important to the company having a lot of faith in its future. It is also worth noting that it was President & COO John Pagan who made the biggest single purchase, worth CA$3.3m, paying CA$104 per share.

The good news, alongside the insider buying, for Descartes Systems Group bulls is that insiders (collectively) have a meaningful investment in the stock. As a matter of fact, their holding is valued at US$30m. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 0.3% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Should You Add Descartes Systems Group To Your Watchlist?

Descartes Systems Group's earnings have taken off in quite an impressive fashion. 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 Descartes Systems Group deserves timely attention. However, before you get too excited we've discovered 1 warning sign for Descartes Systems Group that you should be aware of.

Keen growth investors love to see insider buying. Thankfully, Descartes Systems Group 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.