With EPS Growth And More, Descartes Systems Group (TSE:DSG) Makes An Interesting Case

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. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. 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.

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 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.

See our latest analysis for Descartes Systems Group

How Quickly Is Descartes Systems Group Increasing Earnings Per Share?

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.

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. The music to the ears of Descartes Systems Group shareholders is that EBIT margins have grown from 22% to 27% in the last 12 months and revenues are on an upwards trend as well. That's great to see, on both counts.

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.

While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Descartes Systems Group?

Are Descartes Systems Group 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, small purchases are not always indicative of conviction, and insiders don't always get it right.

Despite US$362k worth of sales, Descartes Systems Group insiders have overwhelmingly been buying the stock, spending US$950k on purchases in the last twelve months. This overall confidence in the company at current the valuation signals their optimism. We also note that it was the Chief Financial Officer, Allan Brett, who made the biggest single acquisition, paying CA$879k for shares at about CA$87.89 each.

Along with the insider buying, another encouraging sign for Descartes Systems Group is that insiders, as a group, have a considerable shareholding. As a matter of fact, their holding is valued at US$23m. That's a lot of money, and no small incentive to work hard. 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.

Is Descartes Systems Group Worth Keeping An Eye On?

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. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Descartes Systems Group belongs near the top of your watchlist. One of Buffett's considerations when discussing businesses is if they are capital light or capital intensive. Generally, a company with a high return on equity is capital light, and can thus fund growth more easily. So you might want to check this graph comparing Descartes Systems Group's ROE with industry peers (and the market at large).

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Descartes Systems Group, you'll probably love this free list of growing companies that insiders are buying.

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.