Here's Why I Think Dynacons Systems & Solutions (NSE:DSSL) Is An Interesting Stock

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 completely lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Dynacons Systems & Solutions (NSE:DSSL). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

See our latest analysis for Dynacons Systems & Solutions

How Quickly Is Dynacons Systems & Solutions Increasing Earnings Per Share?

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. That makes EPS growth an attractive quality for any company. Impressively, Dynacons Systems & Solutions has grown EPS by 36% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

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. While we note Dynacons Systems & Solutions's EBIT margins were flat over the last year, revenue grew by a solid 76% to ₹5.2b. That's progress.

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.

Dynacons Systems & Solutions isn't a huge company, given its market capitalization of ₹1.4b. That makes it extra important to check on its balance sheet strength.

Are Dynacons Systems & Solutions Insiders Aligned With All Shareholders?

Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. 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.

We note that Dynacons Systems & Solutions insiders spent ₹9.0m on stock, over the last year; in contrast, we didn't see any selling. That puts the company in a nice light, as it makes me think its leaders are feeling confident. We also note that it was the Chairman & MD, Shirish Anjaria, who made the biggest single acquisition, paying ₹4.5m for shares at about ₹28.00 each.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Dynacons Systems & Solutions insiders own more than a third of the company. Indeed, with a collective holding of 60%, company insiders are in control and have plenty of capital behind the venture. This makes me think they will be incentivised to plan for the long term - something I like to see. Of course, Dynacons Systems & Solutions is a very small company, with a market cap of only ₹1.4b. That means insiders only have ₹853m 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.

Should You Add Dynacons Systems & Solutions To Your Watchlist?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Dynacons Systems & Solutions's strong EPS growth. On top of that, insiders own a significant stake in the company and have been buying more shares. So it's fair to say I think this stock may well deserve a spot on your watchlist. We don't want to rain on the parade too much, but we did also find 4 warning signs for Dynacons Systems & Solutions (1 is concerning!) that you need to be mindful of.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Dynacons Systems & Solutions, 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.
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