For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like DENTSPLY SIRONA (NASDAQ:XRAY). While profit is not necessarily a social good, it’s easy to admire a business that can consistently produce it. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
DENTSPLY SIRONA’s Improving Profits
In the last three years DENTSPLY SIRONA’s earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn’t tell us much. As a result, I’ll zoom in on growth over the last year, instead. Like the last firework on New Year’s Eve accelerating into the sky, DENTSPLY SIRONA’s EPS shot from US$0.38 to US$0.80, over the last year. Year on year growth of 111% is certainly a sight to behold.
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. While DENTSPLY SIRONA may have maintained EBIT margins over the last year, revenue has fallen. And that does make me a little more cautious of the stock.
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.
Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for DENTSPLY SIRONA.
Are DENTSPLY SIRONA Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. That’s because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don’t always get it right.
For the sake of balance, I do note DENTSPLY SIRONA insiders sold -US$413k worth of shares last year. But this is outweighed by the Independent Director Gregory Lucier who spent US$529k buying shares, at an average price of around around US$58.75.
On top of the insider buying, it’s good to see that DENTSPLY SIRONA insiders have a valuable investment in the business. To be specific, they have US$48m worth of shares. That’s a lot of money, and no small incentive to work hard. Even though that’s only about 0.4% of the company, it’s enough money to indicate alignment between the leaders of the business and ordinary shareholders.
While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That’s because on our analysis the CEO, Don Casey, is paid less than the median for similar sized companies. For companies with market capitalizations over US$8.0b, like DENTSPLY SIRONA, the median CEO pay is around US$11m.
DENTSPLY SIRONA offered total compensation worth US$7.2m to its CEO in the year to . That seems pretty reasonable, especially given its below the median for similar sized companies. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of a culture of integrity, in a broader sense.
Should You Add DENTSPLY SIRONA To Your Watchlist?
DENTSPLY SIRONA’s earnings have taken off like any random crypto-currency did, back in 2017. The incing on the cake is that insiders own a large chunk of the company and one has even been buying more shares. Because of the potential that it has reached an inflection point, I’d suggest DENTSPLY SIRONA belongs on the top of your watchlist. You still need to take note of risks, for example – DENTSPLY SIRONA has 3 warning signs we think you should be aware of.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of DENTSPLY SIRONA, you’ll probably love this free list of growing companies that insiders are buying.
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. 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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