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A frequent question that I get on twitter (@ConfidentInvest) or on emails sent to me via this site is:

Why do I look at EBIT?

In particular, why do I look at the growth of this value?

My answer to this is quite straightforward, but first it my make sense for you to take a quick refresher on EBIT. Rather than typing a lot of words, I am going to ask Hamilton Lin of Wall Street Training to explain it.

As you heard Mr. Lin explain at about 1:20, EBIT is the core sustainable profitability from the core operations of the company. In other words, this is what the company does as a company, and this is how much the company makes for doing it. It is just simply logical that we want to look at this core value, and we want this core value to grow!

There are other metrics that I use to analyze a company. It concerns me when an analyst recommends a company that cannot get its core operations to grow. If the stock price is growing faster than the core operations is growing (taking into account the multiplier effect of P/E) then either the company was too cheap before or it is too expensive now.

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Company name Vale (ADR)
Stock ticker VALE
Live stock price [stckqut]VALE[/stckqut]
P/E compared to competitors Good
MANAGEMENT EXECUTION
Employee productivity Good
Sales growth Good
EPS growth Good
P/E growth Poor
EBIT growth Good
ANALYSIS
Confident Investor Rating Good
Target stock price (TWCA growth scenario) $65.96
Target stock price (averages with growth) $72.08
Target stock price (averages with no growth) $50.75
Target stock price (manual assumptions) $30.68

The following company description is from Google Finance: http://www.google.com/finance?q=vale

Vale SA (Vale) is a Brazil-based metals and mining company. The Company services are divided into four segments: Bulk Material, including the extraction of iron ore, manganese and ferroalloys, as well as pellet production; Basic metals, comprising the production of non-ferrous minerals, including nickel, copper and aluminum; Fertilizers, including the production of potash, phosphate and nitrogen; and Logistic services, including cargo transportation for third parties divided into rail transport, port and shipping services. Additionally, Vale is active in investments in joint ventures and associate in other businesses. The Company operates in more than 38 countries, including mineral exploration activities in 21 countries. As of December 31, 2011, the Company operated through 18 subsidiaries and three jointly-controlled entities, incorporated in Brazil, Peru, Indonesia, Chile, Australia, Austria, Canada, Colombia, Switzerland, Mozambique, New Caledonia, Oman, Singapore and the USA.

Confident Investor comments: At this price and at this time, I think that a Confident Investor can confidently invest in this stock.