Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does nautical multitasker Seaspan (SSW +0.00%) fit the bill? Let's take a look at what its recent results tell us about its potential for future gains.
What we're looking for
The graphs you're about to see tell Seaspan's story, and we'll be grading the quality of that story in several ways:
- Growth: Are profits, margins, and free cash flow all increasing?
- Valuation: Is share price growing in line with earnings per share?
- Opportunities: Is return on equity increasing while debt to equity declines?
- Dividends: Are dividends consistently growing in a sustainable way?
What the numbers tell you
Now, let's take a look at Seaspan's key statistics:
SSW Total Return Price data by YCharts
|
Passing Criteria |
3-Year* Change |
Grade |
|---|---|---|
|
Revenue growth > 30% |
104.2% |
Pass |
|
Improving profit margin |
184.9% |
Pass |
|
Free cash flow growth > Net income growth |
125.4% vs. 273.4% |
Fail |
|
Improving EPS |
231% |
Pass |
|
Stock growth (+ 15%) < EPS growth |
177.3% vs. 231% |
Pass |
Source: YCharts. * Period begins at end of Q2 2010.
SSW Return on Equity data by YCharts
|
Passing Criteria |
3-Year* Change |
Grade |
|---|---|---|
|
Improving return on equity |
240.8% |
Pass |
|
Declining debt to equity |
(7.7%) |
Pass |
|
Dividend growth > 25% |
150% |
Pass |
|
Free cash flow payout ratio < 50% |
38.3% |
Pass |
Source: YCharts. * Period begins at end of Q2 2010.
How we got here and where we're going
Seaspan comes through with flying colors, missing out on a perfect score only because the company's free cash flow, which has been increasing rapidly, calculates out to a lower percentage increase than its net income despite rising from a much lower starting point. Technicalities aside, this is certainly a noteworthy performance -- but can Seaspan keep up its progress? Let's dig a little deeper to find out.
Seaspan competitors STX Pan Ocean, TMT Group, and Excel Maritime Carriers have all filed for bankruptcy in recent months, which highlights both the precariousness of the industry and the opportunity for well-managed shippers to seize greater market share.
According to the International Monetary Fund, Seaspan's three key markets, the U.S., Europe and China, are expected to see 2.7%, 2.8% and 7.7% GDP growth in 2014, respectively, which should certainly boost the global container trade market. Since 90% of global trade volumes were conveyed only via sea routes, Seaspan should be poised for continued growth.
Seaspan has raised its capital expenditures to better serve this expected uptick in global trade. Quite recently, Seaspan inked a contract with Yang Ming Marine Transport for five 14,000 TEU class containerships, which should be finished by 2015. Seaspan will also purchase five additional 14,000 TEU class vessels for approximately $550 million from Taiwan- based CSBC Corporation, which are scheduled for delivery in 2016. The company has another eight new containerships under construction by Mitsui O.S.K. Lines, which are scheduled to be delivered by May 2015. That adds up to an impressive growth in the size of Seaspan's fleet, which relies on 71 smaller containerships -- none in active service are as large as the 10 14,000-TEU ships set to join the fleet in the next three years.
Putting the pieces together
Today, Seaspan has many 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.
