Some have more money than sense, they say, so even companies with no revenue, no profit and a history of failures can easily find investors. But as Warren Buffett said, “If you’ve been playing poker for half an hour and you still don’t know who the sucker is, you’re the sucker.” When buying such stocks, investors are too often suckers.
If, on the other hand, you like businesses that generate revenue and even profit, then you might be interested in Dexco (BVMF: DXCO3). Even if stocks are fully valued today, most capitalists would recognize its earnings as a demonstration of consistent value generation. In comparison, loss-making companies act like a sponge for capital – but unlike such a sponge, they don’t always produce something when pressed.
See our latest analysis for Dexco
How fast is Dexco growing?
If a company can keep increasing its earnings per share (EPS) long enough, its stock price will eventually follow. So it’s no surprise that I like investing in EPS growth companies. For my part, I am blown away by the fact that Dexco has grown EPS by 59% annually over the past three years. Although this type of growth rate is not sustainable for long, it certainly catches my eye. like a crow with a sparkling stone.
I like to see revenue growth as an indication that growth is sustainable, and I look for a high margin on earnings before interest and taxes (EBIT) to point to a competitive moat (although some low-margin companies also have moats). The good news is that Dexco is growing revenue and EBIT margins have improved by 7.4 percentage points to 19% over the past year. Checking those two boxes is a good sign of growth, in my book.
In the table below, you can see how the company has increased its profits and revenue over time. For more details, click on the image.
You don’t drive with your eyes on the rearview mirror, so you might be more interested in that free report showing analyst forecasts for Dexco to come up profits.
Are Dexco insiders aligned with all shareholders?
I feel safer owning stock in a company if insiders also own stock, thereby aligning our interests more closely. Therefore, I am encouraged that insiders hold Dexco shares of considerable value. Notably, they have a huge stake in the company, worth R$2.0 billion. Representing 20% of the company, this stake gives insiders plenty of leverage and plenty of reasons to drive shareholder value. Very encouraging.
Does Dexco deserve a place on your watch list?
Dexco’s earnings took off like any random cryptocurrency in 2017. This kind of growth is just eye-catching, and the significant investment held by insiders certainly informs my view of the company. Sometimes rapid EPS growth is a sign that the business has reached an inflection point; and I like those. So yes, on this short analysis, I think it’s worth considering Dexco for a spot on your watch list. Even so, know that Dexco shows 5 warning signs in our investment analysis and 1 of them makes us a little uncomfortable…
You can invest in the company of your choice. But if you’d rather focus on stocks that have been insider buying, here’s a list of companies that have been insider buying over the past three months.
Please note that insider trading discussed in this article refers to reportable trading in the relevant jurisdiction.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.