Does DNO (OB:DNO) Deserve A Spot On Your Watchlist?

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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 DNO (OB:DNO). 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 DNO

DNO's Improving Profits

Over the last three years, DNO has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. Thus, it makes sense to focus on more recent growth rates, instead. In impressive fashion, DNO's EPS grew from US$0.21 to US$0.39, over the previous 12 months. It's not often a company can achieve year-on-year growth of 88%. Shareholders will be hopeful that this is a sign of the company reaching an inflection point.

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. On the one hand, DNO's EBIT margins fell over the last year, but on the other hand, revenue grew. So it seems the future may hold further growth, especially if EBIT margins can remain steady.

In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check DNO's balance sheet strength, before getting too excited.

Are DNO 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. Because often, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

In twelve months, insiders sold US$343k worth of DNO shares. On the other hand, Director of Human Resources & Corporate Services Geir Skau paid US$610k for shares, at a price of about US$14.32 per share. So, on balance, that's positive.

Along with the insider buying, another encouraging sign for DNO is that insiders, as a group, have a considerable shareholding. We note that their impressive stake in the company is worth US$1.5b. This totals to 13% of shares in the company. Enough to lead management's decision making process down a path that brings the most benefit to shareholders. So there is opportunity here to invest in a company whose management have tangible incentives to deliver.

Is DNO Worth Keeping An Eye On?

DNO's earnings have taken off in quite an impressive fashion. To sweeten the deal, insiders have significant skin in the game with one even acquiring more. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest DNO belongs near the top of your watchlist. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for DNO (1 is significant) you should be aware of.

The good news is that DNO 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.

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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.