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 ArcelorMittal's (NYSE:MT) recent results tell us about its potential for future gains.

What the numbers tell you
The graphs you're about to see tell ArcelorMittal'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 grow at a steady rate, we'll also look at how much ArcelorMittal'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 ArcelorMittal's share price has kept pace with its earnings growth, that's another good sign that its stock can move higher.

Is ArcelorMittal 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 ArcelorMittal'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 ArcelorMittal's key statistics:

MT Total Return Price Chart

MT Total Return Price data by YCharts

Passing Criteria

3-Year* Change 


Revenue Growth > 30%



Improving Profit Margin



Free Cash Flow Growth > Net Income Growth

(49.2%) vs. 79.3%


Improving Earnings per Share



Stock Growth (+ 15%) < EPS Growth

(56.8%) vs. 79.9%


Source: YCharts. * Period begins at end of Q3 2009.

MT Return on Equity Chart

MT Return on Equity data by YCharts

Passing Criteria 

3-Year* Change


Improving Return on Equity



Declining Debt to Equity



Dividend Growth > 25%



Free Cash Flow Payout Ratio < 50% 



Source: YCharts, Morningstar, and Yahoo! Finance. * Period begins at end of Q3 2009.

How we got here and where we're going
Some of the metrics on our second graph aren't complete, but data from other sources allows us to calculate ArcelorMittal's results -- and they are not pretty. Wobbly profits, weak return on equity, and a flat dividend payout that's simply unsustainable at current cash flow levels add up to a lot of failing grades, leaving ArcelorMittal with a single passing grade out of nine possible chances.

ArcelorMittal's dividend hasn't changed in three years, but it's about to get slashed, thanks to a lousy third quarter that the company blamed on weak Chinese demand and ongoing steel cost pressures. China's been cranking out steel at a feverish pace, leaving both American steelmakers like U.S. Steel (NYSE:X), and internationally focused producers like ArcelorMittal, in the dust. That's a problem for non-Chinese steelmakers, despite the fact that China continues to import steel, because the difference between Chinese demand and the rest of the world's oversupply simply hasn't been enough to push steelmakers back to the black.

To compensate for weak global steel demand, ArcelorMittal sold off its stake in European energy company Enovos International earlier this year, but it couldn't prevent a slide into red ink. The only saving grace for ArcelorMittal shareholders over the past year has been that it hasn't done quite as poorly as AK Steel (NYSE:AKS), which has posted one of the worst 52-week performances in the entire sector.

However, ArcelorMittal still trails both Steel Dynamics (NASDAQ:STLD) and Nucor (NYSE:NUE), the only two major steelmakers that haven't posted a 52-week decline so far -- and only barely, at that. That can be credited, in large part, to the fact that they're the only two steelmakers in this group to hold onto a positive trailing 12-month net income. ArcelorMittal's the wild one of the bunch when it comes to earnings, having ranged from several billion dollars in the red at the end of 2009 to over $5 billion in profit by mid-2011. At the moment, ArcelorMittal also boasts the largest level of trailing 12-month free cash flow of any of these steelmakers by far but, after a sharp decline in the third quarter, there are reasons to believe that this distinction may not last. As the largest steelmaker of the group, it needs to maintain higher levels of free cash flow to justify its worth as an investment.

One way to play this erratic stock profitably, according to Foolish analysts Paul Chi and Matt Argersinger, is by writing puts. You can find out more about their strategy by watching this video.

Putting the pieces together
Today, ArcelorMittal has few of the qualities that make up a great stock; but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.