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

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
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 World’s Most Famous Circuses

Best Hair Stylists

Most Popular NASCAR Drivers

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

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 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!