Should You Be Adding Donnelley Financial Solutions (NYSE:DFIN) To Your Watchlist Today?

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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Donnelley Financial Solutions (NYSE:DFIN). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

View our latest analysis for Donnelley Financial Solutions

Donnelley Financial Solutions' Improving Profits

In the last three years Donnelley Financial Solutions' earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. So it would be better to isolate the growth rate over the last year for our analysis. Donnelley Financial Solutions' EPS shot up from US$2.51 to US$4.03; a result that's bound to keep shareholders happy. That's a fantastic gain of 60%.

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. Donnelley Financial Solutions' EBIT margins are flat but, worryingly, its revenue is actually down. Suffice it to say that is not a great sign of growth.

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.

Fortunately, we've got access to analyst forecasts of Donnelley Financial Solutions' future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Donnelley Financial Solutions Insiders Aligned With All Shareholders?

It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. Donnelley Financial Solutions followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. To be specific, they have US$34m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 3.2% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

Is Donnelley Financial Solutions Worth Keeping An Eye On?

You can't deny that Donnelley Financial Solutions has grown its earnings per share at a very impressive rate. That's attractive. This EPS growth rate is something the company should be proud of, and so it's no surprise that insiders are holding on to a considerable chunk of shares. On the balance of its merits, solid EPS growth and company insiders who are aligned with the shareholders would indicate a business that is worthy of further research. It is worth noting though that we have found 2 warning signs for Donnelley Financial Solutions (1 makes us a bit uncomfortable!) that you need to take into consideration.

Although Donnelley Financial Solutions certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

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.