Stock Analysis

Is Now The Time To Put DS Smith (LON:SMDS) On Your Watchlist?

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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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

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 DS Smith (LON:SMDS). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

View our latest analysis for DS Smith

DS Smith'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. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. We can see that in the last three years DS Smith grew its EPS by 7.3% per year. While that sort of growth rate isn't anything to write home about, it does show the business is growing.

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. While we note DS Smith achieved similar EBIT margins to last year, revenue grew by a solid 27% to UK£8.2b. That's progress.

In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.

LSE:SMDS Earnings and Revenue History March 17th 2023

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 DS Smith's future profits.

Are DS Smith 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. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

Despite some DS Smith insiders disposing of some shares, we note that there was UK£119k more in buying interest among those who know the company best Although some people may hesitate due to the share sales, the fact that insiders bought more than they sold, is a positive thing to note. Zooming in, we can see that the biggest insider purchase was by Group Finance Director & Executive Director Adrian R. Marsh for UK£147k worth of shares, at about UK£3.58 per share.

Is DS Smith Worth Keeping An Eye On?

One important encouraging feature of DS Smith is that it is growing profits. It's not easy for business to grow EPS, but DS Smith has shown the strengths to do just that. The eye-catcher here is the reecnt insider share acquisitions which are undoubtedly enough to entice some investors to keep watch for the future. You should always think about risks though. Case in point, we've spotted 3 warning signs for DS Smith you should be aware of, and 1 of them is concerning.

The good news is that DS Smith 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.

Valuation is complex, but we're helping make it simple.

Find out whether DS Smith is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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