Does Fortescue Metals Group (ASX:FMG) Deserve A Spot On Your Watchlist?

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 Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Fortescue Metals Group (ASX:FMG). 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.

Check out our latest analysis for Fortescue Metals Group

How Fast Is Fortescue Metals Group Growing Its Earnings Per Share?

Over the last three years, Fortescue Metals Group has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. Thus, it makes sense to focus on more recent growth rates, instead. Like a falcon taking flight, Fortescue Metals Group's EPS soared from US$1.62 to US$2.07, over the last year. That's a impressive gain of 28%.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. Fortescue Metals Group shareholders can take confidence from the fact that EBIT margins are up from 56% to 60%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.

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

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 Fortescue Metals Group.

Are Fortescue Metals Group Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Any way you look at it Fortescue Metals Group shareholders can gain quiet confidence from the fact that insiders shelled out US$260k to buy stock, over the last year. And when you consider that there was no insider selling, you can understand why shareholders might believe that lady luck will grace this business. Zooming in, we can see that the biggest insider purchase was by Non-Executive Director Ya Zhang for AU$230k worth of shares, at about AU$19.17 per share.

The good news, alongside the insider buying, for Fortescue Metals Group bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they have a glittering mountain of wealth invested in it, currently valued at US$211m. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!

Does Fortescue Metals Group Deserve A Spot On Your Watchlist?

You can't deny that Fortescue Metals Group has grown its earnings per share at a very impressive rate. That's attractive. Not only that, but we can see that insiders both own a lot of, and are buying more, shares in the company. So I do think this is one stock worth watching. What about risks? Every company has them, and we've spotted 3 warning signs for Fortescue Metals Group (of which 1 shouldn't be ignored!) you should know about.

The good news is that Fortescue Metals Group is not the only growth stock with insider buying. Here's a list of them... 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.

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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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