Stock Analysis

I Ran A Stock Scan For Earnings Growth And Sculptor Capital Management (NYSE:SCU) Passed With Ease

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NYSE:SCU
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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. 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, growing companies, like Sculptor Capital Management (NYSE:SCU). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

See our latest analysis for Sculptor Capital Management

How Fast Is Sculptor Capital Management Growing Its Earnings Per Share?

In a capitalist society capital chases profits, and that means share prices tend rise with earnings per share (EPS). So like the hint of a smile on a face that I love, growing EPS generally makes me look twice. You can imagine, then, that it almost knocked my socks off when I realized that Sculptor Capital Management grew its EPS from US$2.44 to US$7.55, in one short year. Even though that growth rate is unlikely to be repeated, that looks like a breakout improvement. Could this be a sign that the business has reached an inflection point?

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. I note that, last year, Sculptor Capital Management's revenue from operations was lower than its revenue, so that could distort my analysis of its margins. The good news is that Sculptor Capital Management is growing revenues, and EBIT margins improved by 20.4 percentage points to 28%, over the last year. That's great to see, on both counts.

In the chart below, you can see how the company has grown earnings, and revenue, over time. Click on the chart to see the exact numbers.

earnings-and-revenue-history
NYSE:SCU Earnings and Revenue History March 17th 2021

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future Sculptor Capital Management EPS 100% free.

Are Sculptor Capital Management Insiders Aligned With All Shareholders?

I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. So it is good to see that Sculptor Capital Management insiders have a significant amount of capital invested in the stock. Indeed, they hold US$47m worth of its stock. That's a lot of money, and no small incentive to work hard. Those holdings account for over 5.5% of the company; visible skin in the game.

Does Sculptor Capital Management Deserve A Spot On Your Watchlist?

Sculptor Capital Management's earnings have taken off like any random crypto-currency did, back in 2017. That sort of growth is nothing short of eye-catching, and the large investment held by insiders certainly brightens my view of the company. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So yes, on this short analysis I do think it's worth considering Sculptor Capital Management for a spot on your watchlist. It's still necessary to consider the ever-present spectre of investment risk. We've identified 5 warning signs with Sculptor Capital Management (at least 2 which are concerning) , and understanding them should be part of your investment process.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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