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The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
In contrast to all that, many investors prefer to focus on companies like Donaldson Company (NYSE:DCI), which has not only revenues, but also profits. While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.
See our latest analysis for Donaldson Company
How Fast Is Donaldson Company Growing?
Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That means EPS growth is considered a real positive by most successful long-term investors. Donaldson Company managed to grow EPS by 15% per year, over three years. That growth rate is fairly good, assuming the company can keep it up.
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. EBIT margins for Donaldson Company remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 4.5% to US$3.6b. That's a real positive.
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.
The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Donaldson Company's future EPS 100% free.
Are Donaldson Company Insiders Aligned With All Shareholders?
Owing to the size of Donaldson Company, we wouldn't expect insiders to hold a significant proportion of the company. But we do take comfort from the fact that they are investors in the company. As a matter of fact, their holding is valued at US$46m. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 0.5% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.