With EPS and MoreWith EPS Growth And More, Champion Iron (ASX:CIA) Is Interesting
Simply Wall StT
Tue, 14 June 2022, 10:57 pm·4-min read
For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.'
When they buy such story stocks, investors are all too often the patsy. In contrast to all that, I prefer to spend time on companies like Champion Iron (ASX:CIA), 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.
While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
Champion Iron's Improving Profits
Over the last three years, Champion Iron has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. As a result, I'll zoom in on growth over the last year, instead.
Champion Iron has grown its trailing twelve month EPS from CA$0.97 to CA$1.01, in the last year. That amounts to a small improvement of 4.2%.I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). While we note Champion Iron's EBIT margins were flat over the last year, revenue grew by a solid 14% to CA$1.5b. That's a real positive.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.earnings-and-revenue-historyOf course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Champion Iron.
Are Champion Iron 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. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
Not only did Champion Iron insiders refrain from selling stock during the year, but they also spent CA$236k buying it. That's nice to see, because it suggests insiders are optimistic. It is also worth noting that it was Senior Vice President of Corporate Development & Capital Markets Michael Marcotte who made the biggest single purchase, worth AU$96k, paying AU$7.81 per share.
Along with the insider buying, another encouraging sign for Champion Iron is that insiders, as a group, have a considerable shareholding. Notably, they have an enormous stake in the company, worth CA$458m. That equates to 13% of the company, making insiders powerful and aligned with other shareholders. So it might be my imagination, but I do sense the glimmer of an opportunity.
Is Champion Iron Worth Keeping An Eye On?
As I already mentioned, Champion Iron is a growing business, which is what I like to see. Better yet, insiders are significant shareholders, and have been buying more shares. To me, that all makes it well worth a spot on your watchlist, as well as continuing research.