With EPS Growth And More, Fortescue Metals Group (ASX:FMG) Is Interesting

By
Simply Wall St
Published
April 13, 2022
ASX:FMG
Source: Shutterstock

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. 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.

In contrast to all that, I prefer to spend time on companies like Fortescue Metals Group (ASX:FMG), which has not only revenues, but also profits. While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

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 wedge-tailed eagle on the wind, Fortescue Metals Group's EPS soared from US$2.07 to US$2.92, in just one year. That's a impressive gain of 41%.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Fortescue Metals Group maintained stable EBIT margins over the last year, all while growing revenue 34% to US$21b. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

earnings-and-revenue-history
ASX:FMG Earnings and Revenue History April 13th 2022

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Fortescue Metals Group's future profits.

Are Fortescue Metals Group Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a AU$65b company like Fortescue Metals Group. But we are reassured by the fact they have invested in the company. Indeed, they have a glittering mountain of wealth invested in it, currently valued at US$241m. 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. I think that EPS growth is something to boast of, and it doesn't surprise me that insiders are holding on to a considerable chunk of shares. So this is very likely the kind of business that I like to spend time researching, with a view to discerning its true value. It's still necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Fortescue Metals Group (at least 1 which is potentially serious) , and understanding these should be part of your investment process.

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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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