If You Like EPS Growth Then Check Out Digital Realty Trust (NYSE:DLR) Before It's Too Late

By
Simply Wall St
Published
November 04, 2021
NYSE:DLR
Source: Shutterstock

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

In contrast to all that, I prefer to spend time on companies like Digital Realty Trust (NYSE:DLR), which has not only revenues, but also profits. Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. 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 Digital Realty Trust

How Quickly Is Digital Realty Trust 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, Digital Realty Trust has grown EPS by 20% per year, compound, in the last three years. As a result, we can understand why the stock trades on a high multiple of trailing twelve month earnings.

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. I note that Digital Realty Trust's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. The good news is that Digital Realty Trust is growing revenues, and EBIT margins improved by 3.6 percentage points to 20%, over the last year. Ticking those two boxes is a good sign of growth, in my book.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

earnings-and-revenue-history
NYSE:DLR Earnings and Revenue History November 4th 2021

While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Digital Realty Trust?

Are Digital Realty Trust Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a US$46b company like Digital Realty Trust. But we are reassured by the fact they have invested in the company. With a whopping US$67m worth of shares as a group, insiders have plenty riding on the company's success. This should keep them focused on creating long term value for shareholders.

Should You Add Digital Realty Trust To Your Watchlist?

For growth investors like me, Digital Realty Trust's raw rate of earnings growth is a beacon in the night. Further, the high level of insider ownership impresses me, and suggests that I'm not the only one who appreciates the EPS growth. So this is very likely the kind of business that I like to spend time researching, with a view to discerning its true value. You still need to take note of risks, for example - Digital Realty Trust has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

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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