Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. And in their study titled Who Falls Prey to the Wolf of Wall Street?’ Leuz et. al. found that it is ‘quite common’ for investors to lose money by buying into ‘pump and dump’ schemes.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Dev Information Technology (NSE:DEVIT). While profit is not necessarily a social good, it’s easy to admire a business that can consistently produce it. In comparison, loss making companies act like a sponge for capital – but unlike such a sponge they do not always produce something when squeezed.
How Quickly Is Dev Information Technology Increasing Earnings Per Share?
As one of my mentors once told me, share price follows earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Over the last three years, Dev Information Technology has grown EPS by 12% per year. That’s a good rate of growth, if it can be sustained.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company’s growth. Unfortunately, revenue is down and so are margins. That will not make it easy to grow profits, to say the least.
You can take a look at the company’s revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.
Dev Information Technology isn’t a huge company, given its market capitalization of ₹397m. That makes it extra important to check on its balance sheet strength.
Are Dev Information Technology 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 as you can imagine, the fact that Dev Information Technology insiders own a significant number of shares certainly appeals to me. Indeed, with a collective holding of 77%, company insiders are in control and have plenty of capital behind the venture. To me this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. Of course, Dev Information Technology is a very small company, with a market cap of only ₹397m. That means insiders only have ₹306m worth of shares, despite the large proportional holding. That’s not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.
It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. A brief analysis of the CEO compensation suggests they are. I discovered that the median total compensation for the CEOs of companies like Dev Information Technology with market caps under ₹14b is about ₹3.5m.
The Dev Information Technology CEO received total compensation of only ₹2.4m in the year to March 2019. This could be considered a token amount, and indicates that the company does not need to use payment to motivate the CEO – that is often a good sign. While the level of CEO compensation isn’t a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.
Does Dev Information Technology Deserve A Spot On Your Watchlist?
As I already mentioned, Dev Information Technology is a growing business, which is what I like to see. The fact that EPS is growing is a genuine positive for Dev Information Technology, but the pretty picture gets better than that. Boasting both modest CEO pay and considerable insider ownership, I’d argue this one is worthy of the watchlist, at least. Now, you could try to make up your mind on Dev Information Technology by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.
You can invest in 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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