Here's Why We Think Cheniere Energy (NYSE:LNG) Is Well Worth Watching
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. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Cheniere Energy (NYSE:LNG). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
See our latest analysis for Cheniere Energy
Cheniere Energy's Improving Profits
Investors and investment funds chase profits, and that means share prices tend rise with positive earnings per share (EPS) outcomes. So a growing EPS generally brings attention to a company in the eyes of prospective investors. It is awe-striking that Cheniere Energy's EPS went from US$5.69 to US$42.10 in just one year. When you see earnings grow that quickly, it often means good things ahead for the company.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Our analysis has highlighted that Cheniere Energy's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. We note that while EBIT margins have improved from 14% to 78%, the company has actually reported a fall in revenue by 41%. That's not a good look.
The chart below shows how the company's bottom and top lines have progressed 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 Cheniere Energy's forecast profits?
Are Cheniere Energy Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a US$37b company like Cheniere Energy. But we do take comfort from the fact that they are investors in the company. Notably, they have an enviable stake in the company, worth US$236m. We note that this amounts to 0.6% of the company, which may be small owing to the sheer size of Cheniere Energy but it's still worth mentioning. This should still be a great incentive for management to maximise shareholder value.
Should You Add Cheniere Energy To Your Watchlist?
Cheniere Energy's earnings per share growth have been climbing higher at an appreciable rate. This level of EPS growth does wonders for attracting investment, and the large insider investment in the company is just the cherry on top. At times fast EPS growth is a sign the business has reached an inflection point, so there's a potential opportunity to be had here. So based on this quick analysis, we do think it's worth considering Cheniere Energy for a spot on your watchlist. You still need to take note of risks, for example - Cheniere Energy has 2 warning signs (and 1 which is concerning) we think you should know about.
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 tailored list of companies which have demonstrated growth backed by recent insider purchases.
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.
