Do Cleveland-Cliffs' (NYSE:CLF) Earnings Warrant Your Attention?

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. 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 Cleveland-Cliffs (NYSE:CLF). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Cleveland-Cliffs with the means to add long-term value to shareholders.

View our latest analysis for Cleveland-Cliffs

Cleveland-Cliffs' Earnings Per Share Are Growing

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Impressively, Cleveland-Cliffs has grown EPS by 26% per year, compound, in the last three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.

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. The good news is that Cleveland-Cliffs is growing revenues, and EBIT margins improved by 9.2 percentage points to 21%, over the last year. That's great to see, on both counts.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

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 Cleveland-Cliffs' future profits.

Are Cleveland-Cliffs Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

The US$1.1m worth of shares that insiders sold during the last 12 months pales in comparison to the US$2.1m they spent on acquiring shares in the company. This adds to the interest in Cleveland-Cliffs because it suggests that those who understand the company best, are optimistic. We also note that it was the Chairman, C. Goncalves, who made the biggest single acquisition, paying US$988k for shares at about US$19.77 each.

The good news, alongside the insider buying, for Cleveland-Cliffs bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they have a considerable amount of wealth invested in it, currently valued at US$125m. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future.

Does Cleveland-Cliffs Deserve A Spot On Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Cleveland-Cliffs' strong EPS growth. Not only that, but we can see that insiders both own a lot of, and are buying more shares in the company. These things considered, this is one stock worth watching. Don't forget that there may still be risks. For instance, we've identified 4 warning signs for Cleveland-Cliffs (1 is concerning) you should be aware of.

Keen growth investors love to see insider buying. Thankfully, Cleveland-Cliffs 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.