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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.  While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Dream Finders Homes (NYSE:DFH). 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.

How Fast Is Dream Finders Homes 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.   Dream Finders Homes' shareholders have have plenty to be happy about as their annual EPS growth for the last 3 years was 47%.  That sort of growth rarely ever lasts long, but it is well worth paying attention to when it happens.  

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.    Dream Finders Homes maintained stable EBIT margins over the last year, all while growing revenue 10% to US$3.8b.  That's progress.  

The chart below shows how the company's bottom and top lines have progressed over time.  For finer detail, click on the image.

NYSE:DFH Earnings and Revenue History May 7th 2024

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 Dream Finders Homes' future EPS 100% free.  

Are Dream Finders Homes Insiders Aligned With All Shareholders?

Seeing insiders owning a large portion of the shares on issue is often a good sign. Their incentives will be aligned with the investors and there's less of a probability in a sudden sell-off that would impact the share price.  So those who are interested in Dream Finders Homes will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares.    To be exact, company insiders hold 71% of the company, so their decisions have a significant impact on their investments.  This makes it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy.    And their holding is extremely valuable at the current share price, totalling US$2.1b.  This is an incredible endorsement from them.  

Does Dream Finders Homes Deserve A Spot On Your Watchlist?

Dream Finders Homes' earnings per share have been soaring, with growth rates sky high.   That EPS growth certainly is attention grabbing, and the large insider ownership only serves to further stoke our interest.  The hope is, of course, that the strong growth marks a fundamental improvement in the business economics.  So based on this quick analysis, we do think it's worth considering Dream Finders Homes for a spot on your watchlist.     We don't want to rain on the parade too much, but we did also find 2 warning signs for Dream Finders Homes (1 can't be ignored!) that you need to be mindful of.  

While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in the US with promising growth potential and insider confidence.

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.