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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
In contrast to all that, I prefer to spend time on companies like Cleveland-Cliffs (NYSE:CLF), which has not only revenues, but also profits. Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
Cleveland-Cliffs's Improving Profits
In the last three years Cleveland-Cliffs's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. As a result, I'll zoom in on growth over the last year, instead. Like the last firework on New Year's Eve accelerating into the sky, Cleveland-Cliffs's EPS shot from US$1.93 to US$3.32, over the last year. You don't see 73% year-on-year growth like that, very often.
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. While we note Cleveland-Cliffs's EBIT margins were flat over the last year, revenue grew by a solid 17% to US$2.3b. That's a real positive.
You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.
While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Cleveland-Cliffs?
Are Cleveland-Cliffs 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. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
Despite -US$127.8k worth of sales, Cleveland-Cliffs insiders have overwhelmingly been buying the stock, spending US$919k on purchases in the last twelve months. You could argue that level of buying implies genuine confidence in the business. Zooming in, we can see that the biggest insider purchase was by Executive VP & CFO Keith Koci for US$252k worth of shares, at about US$8.39 per share.
On top of the insider buying, it's good to see that Cleveland-Cliffs insiders have a valuable investment in the business. To be specific, they have US$33m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 1.6% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
Does Cleveland-Cliffs Deserve A Spot On Your Watchlist?
Cleveland-Cliffs's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. Just as heartening; insiders both own and are buying more stock. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Cleveland-Cliffs deserves timely attention. Another important measure of business quality not discussed here, is return on equity (ROE). Click on this link to see how Cleveland-Cliffs shapes up to industry peers, when it comes to ROE.
As a growth investor I do like to see insider buying. But 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
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