Investment group

Here’s why I think Diamond Hill Investment Group (NASDAQ:DHIL) might deserve your attention today

Like a puppy chasing its tail, some new investors are often looking for “the next big thing,” even if that means buying “history stocks” with no revenue, let alone profit. But as Peter Lynch said in One Up on Wall Street“Long shots almost never pay off.”

So if you’re like me, you might be more interested in profitable and growing businesses, like Diamond Hill Investment Group (NASDAQ: DHIL). Although profit is not necessarily a social good, it is easy to admire a company that can produce it consistently. Loss-making businesses are always in a race against time to achieve financial viability, but time is often the friend of a profitable business, especially if it is growing.

How fast is the Diamond Hill investment group growing?

As one of my mentors once told me, stock price follows earnings per share (EPS). This means EPS growth is seen as a real benefit by most successful long-term investors. We can see that over the past three years, Diamond Hill Investment Group has grown its EPS by 13% per year. This growth rate is quite good, assuming the company can sustain it.

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). Diamond Hill Investment Group has maintained stable EBIT margins over the past year, while growing revenue 37% to $174 million. This is a real plus point.

You can check the company’s revenue and profit growth trend in the table below. For more details, click on the image.

NasdaqGS: DHIL Earnings and Revenue History January 27, 2022

While profitability is driving the upside, cautious investors are also still checking the balance sheet.

Are Diamond Hill Investment Group insiders aligned with all shareholders?

Like that fresh smell in the air when the rains come, insider buying fills me with hopeful anticipation. This view is based on the possibility that stock purchases signal an uptrend on behalf of the buyer. However, insiders are sometimes wrong and we don’t know the exact logic behind their acquisitions.

While Diamond Hill Investment Group insiders sold shares net of -US$266,000 over the past year, they invested US$513,000, a much higher figure. One could argue that the level of purchase implies genuine trust in the company. It should also be noted that it was Chairman of the Board and Lead Independent Director James Laird who made the largest single purchase, worth US$290,000, paying US$145 per share.

In addition to insider buying, it’s good to see that Diamond Hill Investment Group insiders have a valuable investment in the company. Indeed, they hold for 20 million dollars of its shares. It shows strong buy-in and can indicate belief in the business strategy. Even though that’s only about 3.5% of the company, it’s enough money to indicate the alignment between company executives and common stockholders.

Does Diamond Hill Investment Group deserve a spot on your watch list?

As I mentioned before, Diamond Hill Investment Group is a growing company, which I like to see. Even better, the insiders are major shareholders and have bought more shares. That makes the company a prime candidate for my watchlist — and arguably a search priority. However, you should inquire about the 3 warning signs we scouted with Diamond Hill Investment Group (including 1 that makes us a bit uneasy).

As a growth investor, I like to see insider buying. But Diamond Hill Investment Group is not alone. You can see a free list of them here.

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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.