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.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
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 Data#3 (ASX:DTL). 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.
Check out our latest analysis for Data#3
Data#3's Earnings Per Share Are Growing
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That makes EPS growth an attractive quality for any company. Impressively, Data#3 has grown EPS by 19% per year, compound, in the last three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.
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. Data#3 maintained stable EBIT margins over the last year, all while growing revenue 12% to AU$2.4b. That's encouraging news for the company!
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.
Fortunately, we've got access to analyst forecasts of Data#3's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Data#3 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. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
Insiders both bought and sold Data#3 shares in the last year, but the good news is they spent AU$8.7k more buying than they netted selling. When you weigh that up, it is a mild positive, indicating increased alignment between shareholders and management.
On top of the insider buying, it's good to see that Data#3 insiders have a valuable investment in the business. As a matter of fact, their holding is valued at AU$41m. That shows significant buy-in, and may indicate conviction in the business strategy. While their ownership only accounts for 3.7%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.