Yahoo Finance With EPS Growth And More, Duxton Water (ASX:D2O) Is Interesting
Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. 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 the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Duxton Water (ASX:D2O). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
See our latest analysis for Duxton Water
Duxton Water's Earnings Per Share Are Growing.
If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. It certainly is nice to see that Duxton Water has managed to grow EPS by 32% per year over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Unfortunately, Duxton Water's revenue dropped 59% last year, but the silver lining is that EBIT margins improved from 17% to 33%. That's not ideal.
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.
Duxton Water isn't a huge company, given its market capitalization of AU$160m. That makes it extra important to check on its balance sheet strength.
Are Duxton Water Insiders Aligned With All Shareholders?
It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. As a result, I'm encouraged by the fact that insiders own Duxton Water shares worth a considerable sum. Indeed, they hold AU$19m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 12% of the company; visible skin in the game.
Should You Add Duxton Water To Your Watchlist?
Given my belief that share price follows earnings per share you can easily imagine how I feel about Duxton Water's strong EPS growth. Further, the high level of insider ownership impresses me, and suggests that I'm not the only one who appreciates the EPS growth. Fast growth and confident insiders should be enough to warrant further research. So the answer is that I do think this is a good stock to follow along with. We don't want to rain on the parade too much, but we did also find 3 warning signs for Duxton Water (1 shouldn't be ignored!) that you need to be mindful of.
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.
This article by Simply Wall St is general in nature. 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.
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