It’s only natural that many investors, especially those new to the game, prefer to buy stocks in “sexy” stocks with a good history, even if those companies are losing money. Unfortunately, high-risk investments are often unlikely to ever return, and many investors pay a price to learn their lesson.
Contrary to all that, I prefer to spend time on companies like BlueScope Steel (ASX: BSL), which not only generates revenue, but also profits. Although profit is not necessarily a social good, it is easy to admire a company that can produce it consistently. Conversely, a loss-making business has yet to prove itself with profits, and eventually the sweet milk of outside capital can turn sour.
See our latest review for BlueScope Steel
How fast is BlueScope Steel growing?
The market is a short-term voting machine, but a long-term weighing machine, so stock price eventually follows earnings per share (EPS). This means EPS growth is seen as a real benefit by most successful long-term investors. Impressively, BlueScope Steel has increased EPS by 18% pa, compounded, over the past three years. Generally, we would say that if a company can follow this kind of growth, shareholders will be smiling.
I like to take a look at earnings before interest and tax margins (EBIT), as well as revenue growth, to get another view of the quality of the company’s growth. BlueScope Steel shareholders can take comfort in the fact that EBIT margins have increased from 6.6% to 21% and revenues are increasing. It’s great to see, on both counts.
The graph below shows how the company’s bottom line and top results have grown over time. For more details, click on the image.
The trick, as an investor, is to find companies that go to perform well in the future, not just in the past. To this end, now and today you can check our visualization of analyst consensus forecasts for the future BlueScope Steel EPS 100% free.
Are BlueScope Steel insiders aligned with all shareholders?
Given that BlueScope Steel has a market capitalization of A$9.0 billion, we wouldn’t expect insiders to hold a high percentage of shares. But we are reassured by the fact that they are investors in the company. To be precise, they own A$49 million worth of shares. It shows strong buy-in and can indicate belief in the business strategy. Even though that’s only about 0.5% of the company, it’s enough money to indicate alignment between company executives and common shareholders.
Should you add BlueScope Steel to your watchlist?
For growth investors like me, BlueScope Steel’s gross earnings growth rate is a beacon in the night. Additionally, the high level of insider ownership impresses me and suggests that I am not the only one enjoying EPS growth. Rapid growth and confident insiders should be enough to warrant further research. So the answer is that I think it’s a good stock to follow. It must be said that we discovered 2 warning signs for BlueScope Steel (1 should not be ignored!) which you should be aware of before investing here.
While BlueScope Steel certainly looks good to me, I’d like it more if insiders were buying stocks. If you also like to see insiders buy, then this free list of growing companies that insiders are buyingcould be exactly what you are looking for.
Please note that insider trading discussed in this article refers to reportable trading in the relevant jurisdiction.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
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