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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Frontline (NYSE:FRO). 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.
How Fast Is Frontline 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. It is therefore awe-striking that Frontline's EPS went from US$0.40 to US$2.50 in just one year. When you see earnings grow that quickly, it often means good things ahead for the company. Could this be a sign that the business has reached an inflection point?
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). I note that Frontline's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Frontline shareholders can take confidence from the fact that EBIT margins are up from 20% to 42%, and revenue is growing. 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. To see the actual numbers, click on the chart.
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 Frontline's future profits.
Are Frontline Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
One shining light for Frontline is the serious outlay one insider has made to buy shares, in the last year. Specifically, in one large transaction Chief Executive Officer of Frontline Management AS Robert Macleod paid US$2.2m, for stock at US$10.99 per share. Big insider buys like that are almost as rare as an ocean free of single use plastic waste.
Does Frontline Deserve A Spot On Your Watchlist?
Frontline's earnings per share have taken off like a rocket aimed right at the moon. Growth investors should find it difficult to look past that strong EPS move. And in fact, it could well signal a fundamental shift in the business economics. If that's the case, you may regret neglecting to put Frontline on your watchlist. It is worth noting though that we have found 4 warning signs for Frontline (1 doesn't sit too well with us!) that you need to take into consideration.
As a growth investor I do like to see insider buying. But Frontline isn't the only one. You can see a 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. 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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