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Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
In contrast to all that, I prefer to spend time on companies like Frontline (NYSE:FRO), which has not only revenues, but also profits. While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
How Fast Is Frontline Growing?
As one of my mentors once told me, share price follows earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. I, for one, am blown away by the fact that Frontline has grown EPS by 58% per year, over the last three years. Growth that fast may well be fleeting, but like a lotus blooming from a murky pond, it sparks joy for the wary stock pickers.
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. 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 16% to 33%, and revenue is growing. That's great to see, on both counts.
You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
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 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 gleaming positive for Frontline, in the last year, is that a certain insider has buying shares with ample enthusiasm. In one fell swoop, Chief Executive Officer of Frontline Management AS Robert Macleod, spent US$2.2m, at a price of US$10.99 per share. Big insider buys like that are almost as rare as an ocean free of single use plastic waste.
Is Frontline Worth Keeping An Eye On?
Frontline's earnings have taken off like any random crypto-currency did, back in 2017. Growth investors should find it difficult to look past that strong EPS move. And indeed, it could be a sign that the business is at an inflection point. If that's the case, you may regret neglecting to put Frontline on your watchlist. You should always think about risks though. Case in point, we've spotted 4 warning signs for Frontline you should be aware of, and 2 of them are a bit concerning.
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.
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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