We Ran A Stock Scan For Earnings Growth And Frontline (NYSE:FRO) Passed With Ease

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any 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. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Frontline (NYSE:FRO). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

Check out our latest analysis for Frontline

How Fast Is Frontline Growing?

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That makes EPS growth an attractive quality for any company. We can see that in the last three years Frontline grew its EPS by 14% per year. That's a good rate of growth, if it can be sustained.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. The good news is that Frontline is growing revenues, and EBIT margins improved by 34.8 percentage points to 43%, over the last year. Both of which are great metrics to check off for potential growth.

In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Frontline's forecast profits?

Are Frontline Insiders Aligned With All Shareholders?

Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So those who are interested in Frontline will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. Actually, with 36% of the company to their names, insiders are profoundly invested in the business. This should be a welcoming sign for investors because it suggests that the people making the decisions are also impacted by their choices. And their holding is extremely valuable at the current share price, totalling US$1.5b. That means they have plenty of their own capital riding on the performance of the business!

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. For companies with market capitalisations between US$2.0b and US$6.4b, like Frontline, the median CEO pay is around US$6.7m.

Frontline's CEO took home a total compensation package of US$1.2m in the year prior to December 2022. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of good governance, more generally.

Should You Add Frontline To Your Watchlist?

One important encouraging feature of Frontline is that it is growing profits. Earnings growth might be the main attraction for Frontline, but the fun does not stop there. With company insiders aligning themselves considerably with the company's success and modest CEO compensation, there's no arguments that this is a stock worth looking into. We should say that we've discovered 3 warning signs for Frontline (1 can't be ignored!) that you should be aware of before investing here.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.