With EPS Growth And More, Frontline (NYSE:FRO) Is Interesting

By
Simply Wall St
Published
March 02, 2021
NYSE:FRO
Source: Shutterstock

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. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

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). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

View our latest analysis for Frontline

How Fast Is Frontline Growing Its Earnings Per Share?

Over the last three years, Frontline 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 firecracker arcing through the night sky, Frontline's EPS shot from US$0.81 to US$2.11, over the last year. Year on year growth of 159% is certainly a sight to behold. The best case scenario? That the business has hit a true 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, Frontline's revenue from operations was lower than its revenue, so that could distort my analysis of its margins. Frontline shareholders can take confidence from the fact that EBIT margins are up from 25% to 39%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.

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:FRO Earnings and Revenue History March 3rd 2021

Fortunately, we've got access to analyst forecasts of Frontline's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Frontline Insiders Aligned With All Shareholders?

Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. 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.

The first bit of good news is that no Frontline insiders reported share sales in the last twelve months. Even better, though, is that the Chief Executive Officer of Frontline Management AS, Robert Macleod, bought a whopping US$392k worth of shares, paying about US$7.85 per share, on average. Big buys like that give me a sense of opportunity; actions speak louder than words.

Is Frontline Worth Keeping An Eye On?

Frontline's earnings have taken off like any random crypto-currency did, back in 2017. If you're like me, you'll find it hard to ignore that sort of explosive EPS growth. 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 2 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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