Data#3 (ASX:DTL) Analysis - Stocks Under The Hood

Company Overview

Data#3 Limited (ASX: DTL) is an Australian IT services company. It provides a broad range of technology products and services, including cloud computing, software licensing, hardware procurement, managed services, and IT consulting. The company helps organizations implement and manage technology solutions that drive business outcomes and enhance productivity. Data#3 also supports digital transformation initiatives. It serves various sectors, including education, government, and corporate enterprises. Data#3 partners with major technology vendors like Microsoft, Cisco, and HP.

https://www.data3.com/

Initial Financial and Technical Screening

Data#3 (ASX:DTL) Analysis - company dashboard

Data#3 (ASX: DTL) receives 7 out of 8 possible ticks in the initial screening. The company is growing and is expected to continue to do so; however, their last report showed a decline in operating cash flows. They have a grossed-up dividend yield of 4.1%, and debt levels are very low. They released results yesterday (August 21st), and the shares had a strong day, but all gains were reversed today following updates from brokers. Nevertheless, they’ve had a strong 12 months, with the share price up 21% in that time. Data#3 has a short position of 3.8% which, while not huge, is significant and shows that some don’t believe this stock has a bright future.

Fundamental Analysis

Earnings, EBITDA, revenues and operating cash flows for ASX:DTL

Earnings, EBITDA, and revenues paint a beautiful “bottom left to top right” picture. However, operating cash flows are much more volatile for this business, and there appears to be some correlation between the share price and operating cash flows. The latest decline in this measure may have contributed to the weakness in the share price today.

Data#3 (ASX:DTL) Analysis - Dividend history

The company has an impressive and consistent history of increasing dividends.

Quality Assessment

Data#3 (ASX:DTL) quality metrics

As noted above, Data#3 has a history of incredible consistency in revenue and earnings growth. The ROE is very high, and they have more cash than debt. The only downside is that they operate on very low margins suggesting perhaps that they operate in a very competitive market. Overall, this is a medium to high-quality company.

Valuation Considerations

Historically, this is not a company that has been valued highly. Until 2019, the average P/E ratio was around 15. Since then, the market has been willing to pay more, with Data#3 now trading at a P/E ratio of 29.5. I would argue it was more undervalued back then than overvalued today. For instance, over the past five years, Data#3 has increased earnings at a compound annual rate of 18.5% while consistently paying a healthy dividend. A P/E ratio of 15 would significantly undervalue this company. However, analysts are forecasting slower growth moving forward, with EPS growth of 10.7% in 2025 and 12.9% in 2026, making the current P/E ratio of 29.5 seem rather high.

Data#3 (ASX:DTL) price to sales history

We can see the increase in valuation when we look at the Price to Sales chart over time too.

Data#3 (ASX:DTL) Analysis - Valuation model

The valuation model, which compares the company’s current value to its historical valuation, shows that Data#3’s current price is significantly above historical norms.

Brokers have a price target of $8.64 compared to a closing price of $8.27. The shares would need to rise 4.5% to close that gap.

Technical Analysis

The long-term price chart for Data#3 is strong, with shareholders benefiting from both earnings and valuation expansion. The medium-term uptrend, as represented by the long-term moving average ribbon, remains intact.

Data#3 As A Way To Play The AI Theme?

According to ChatGPT, these are the pro’s for investing in this company as means of playing the AI theme:

These are the cons:

Concluding Statement

Data#3 (ASX: DTL) demonstrates strong and consistent growth in earnings and revenue, supported by a robust history of dividend increases and a high ROE. However, the company’s valuation has expanded significantly in recent years, and while the fundamentals remain solid, the current price appears to be above historical norms. This could suggest that future growth expectations are already priced in, warranting caution for new investors despite the company’s past performance.

ABOUT STOCKS UNDER THE HOOD

If you’re an active investor or would like to become one, Stocks Under The Hood is your ideal companion. I provide a wealth of educational resources, including detailed company dashboards, in-depth reports, and model portfolios. My goal is to help you cut through market noise with clear, actionable insights and educational content, empowering you to make informed investment decisions. With a strategic, growth-focused approach, I guide you toward the best opportunities in the market.

A FREE 14 Day TRIAL is available enabling you full access to the site (just provide your name and email address – no credit card is required). You will then be able to view all of the Stock Reports, Company Dashboards, and two Model Portfolios. ALSO, request ONE STOCK OF YOUR CHOICE from the Australian or US market and I will do a full stock report for you.

Disclaimer: This information is provided purely for educational purposes. It takes no account of an individual’s personal financial circumstances and hence can in no way constitute financial advice. The above data may be subject to errors or inconsistencies for which the author takes no liability. It is imperative that all investors do their own research or if they need advice, seek it from a qualified financial adviser.

Data#3 (ASX:DTL) Analysis