Here's Why Daqo New Energy (NYSE:DQ) Has Caught The Eye Of Investors

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Daqo New Energy (NYSE:DQ). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Daqo New Energy with the means to add long-term value to shareholders.

View our latest analysis for Daqo New Energy

Daqo New Energy's Improving Profits

Over the last three years, Daqo New Energy 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. As a result, we'll zoom in on growth over the last year, instead. Impressively, Daqo New Energy's EPS catapulted from US$9.28 to US$21.72, over the last year. It's not often a company can achieve year-on-year growth of 134%. The best case scenario? That the business has hit a true inflection point.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. The good news is that Daqo New Energy is growing revenues, and EBIT margins improved by 3.7 percentage points to 64%, over the last year. That's great to see, on both counts.

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.

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Daqo New Energy.

Are Daqo New Energy Insiders Aligned With All Shareholders?

It's a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market. Shareholders will be pleased by the fact that insiders own Daqo New Energy shares worth a considerable sum. Notably, they have an enviable stake in the company, worth US$769m. This totals to 23% of shares in the company. Enough to lead management's decision making process down a path that brings the most benefit to shareholders. Looking very optimistic for investors.

Does Daqo New Energy Deserve A Spot On Your Watchlist?

Daqo New Energy's earnings per share have been soaring, with growth rates sky high. This level of EPS growth does wonders for attracting investment, and the large insider investment in the company is just the cherry on top. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. Based on the sum of its parts, we definitely think its worth watching Daqo New Energy very closely. We should say that we've discovered 2 warning signs for Daqo New Energy that you should be aware of before investing here.

Although Daqo New Energy 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.