Stock Analysis

Here's Why We Think ArcelorMittal South Africa (JSE:ACL) Might Deserve Your Attention Today

JSE:ACL
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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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in ArcelorMittal South Africa (JSE:ACL). 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 ArcelorMittal South Africa

How Fast Is ArcelorMittal South Africa Growing?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Recognition must be given to the that ArcelorMittal South Africa has grown EPS by 47% per year, over the last three years. Growth that fast may well be fleeting, but it should be more than enough to pique the interest of the wary stock pickers.

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 music to the ears of ArcelorMittal South Africa shareholders is that EBIT margins have grown from 11% to 19% in the last 12 months and revenues are on an upwards trend as well. Ticking those two boxes is a good sign of growth, in our book.

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.

earnings-and-revenue-history
JSE:ACL Earnings and Revenue History September 1st 2022

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are ArcelorMittal South Africa Insiders Aligned With All Shareholders?

It's a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market. So it is good to see that ArcelorMittal South Africa insiders have a significant amount of capital invested in the stock. As a matter of fact, their holding is valued at R350m. That shows significant buy-in, and may indicate conviction in the business strategy. As a percentage, this totals to 6.2% of the shares on issue for the business, an appreciable amount considering the market cap.

It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. Our quick analysis into CEO remuneration would seem to indicate they are. The median total compensation for CEOs of companies similar in size to ArcelorMittal South Africa, with market caps between R3.4b and R14b, is around R12m.

The ArcelorMittal South Africa CEO received R9.3m in compensation for the year ending December 2021. That is actually below the median for CEO's of similarly sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Does ArcelorMittal South Africa Deserve A Spot On Your Watchlist?

ArcelorMittal South Africa's earnings have taken off in quite an impressive fashion. An added bonus for those interested is that management hold a heap of stock and the CEO pay is quite reasonable, illustrating good cash management. The sharp increase in earnings could signal good business momentum. ArcelorMittal South Africa certainly ticks a few boxes, so we think it's probably well worth further consideration. We should say that we've discovered 3 warning signs for ArcelorMittal South Africa 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.

Valuation is complex, but we're helping make it simple.

Find out whether ArcelorMittal South Africa is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.