Is Ship Finance International Limited (SFL) Destined for Greatness?

Page 1 of 2

Every investor can appreciate a stock that consistently beats the Street without getting ahead of its fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with improving financial metrics that support strong price growth. Let’s take a look at what Ship Finance International Limited (NYSE:SFL)‘s recent results tell us about its potential for future gains.

What the numbers tell you
The graphs you’re about to see tell Ship Finance’s story, and we’ll be grading the quality of that story in several ways.

Growth is important on both top and bottom lines, and an improving profit margin is a great sign that a company’s become more efficient over time. Since profits may not always reported at a steady rate, we’ll also look at how much Ship Finance’s free cash flow has grown in comparison to its net income.

A company that generates more earnings per share over time, regardless of the number of shares outstanding, is heading in the right direction. If Ship Finance’s share price has kept pace with its earnings growth, that’s another good sign that its stock can move higher.

Is Ship Finance managing its resources well? A company’s return on equity should be improving, and its debt to equity ratio declining, if it’s to earn our approval.

Healthy dividends are always welcome, so we’ll also make sure that Ship Finance’s dividend payouts are increasing, but at a level that can be sustained by its free cash flow.

By the numbers
Now, let’s take a look at Ship Finance’s key statistics:

SFL Total Return Price Chart

SFL Total Return Price data by YCharts.

Passing Criteria 3-Year* Change Grade
Revenue growth > 30% (13.2%) Fail
Improving profit margin 9.9% Pass
Free cash flow growth > Net income growth (65.4%) vs. 23.8% Fail
Improving EPS 12.8% Pass
Stock growth (+ 15%) < EPS growth 82.3% vs. 12.8% Fail

Sources: YCharts and Yahoo! Finance
*Period begins at end of Q3 2009.

SFL Return on Equity Chart

SFL Return on Equity data by YCharts.

Passing Criteria 3-Year* Change Grade
Improving return on equity (12.7%) Fail
Declining debt to equity (37%) Pass
Dividend growth > 25% 18.2% Fail
Payout ratio < 50% 74% Fail

Sources: YCharts and Yahoo! Finance.
*Period begins at end of Q3 2009.

How we got here and where we’re going
Three out of nine passing grades isn’t a particularly impressive showing, regardless of Ship Finance’s weighty dividend. That dividend is always at risk of being cut, should business deteriorate even modestly, as it currently takes up three quarters of the company’s net income. Despite weakening revenue and free cash flow, Ship Finance’s stock has shot up over the past three years — most likely the result of yield-seekers piling on. Can Ship Finance improve its fundamentals and continue to justify this optimism? Let’s take a look.

In some respects, Ship Finance is already in much better shape than its shipping peers. The collapse of the highly watched Baltic Dry Index hasn’t had anywhere near the impact on Ship Finance as it’s had elsewhere, because Ship Finance has historically focused on crude oil transport. In fact, Ship Finance began as an oil-focused shipping spinoff from Frontline Ltd. (NYSE:FRO) , which sold it most of its original fleet.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

The 10 Longest Wars of All Time

The 13 Worst Looking Foods that Taste Great

The 6 Most Gruesome Injuries Suffered During a Sports Match

The 20 Biggest Contracts in MLB History

The 7 Worst Blown Calls in Sports History

7 Free Ways to Advertise Your Business Online

The 18 Best R&B Songs of the 90’s

The 10 Most Dangerous States to be a Cop

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!