After looking at Deltic Timber Corporation’s (NYSE:DEL) latest earnings update (31 December 2017), I found it helpful to revisit the company’s performance in the past couple of years and compare this against the latest numbers. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is an important aspect. In this article I briefly touch on my key findings. View out our latest analysis for Deltic Timber
Did DEL perform worse than its track record and industry?
DEL’s trailing twelve-month earnings (from 31 December 2017) of US$6.49m has declined by -28.92% compared to the previous year. Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of -2.16%, indicating the rate at which DEL is growing has slowed down. Why could this be happening? Let’s examine what’s occurring with margins and whether the whole industry is experiencing the hit as well.
Revenue growth in the past few years, has been positive, nevertheless earnings growth has been declining. This implies that Deltic Timber has been growing expenses, which is hurting margins and earnings, and is not a sustainable practice. Viewing growth from a sector-level, the US forestry industry has been ramping up average earnings growth of 64.62% in the prior year, and a robust 16.46% over the last five years. This shows that whatever uplift the industry is enjoying, Deltic Timber has not been able to gain as much as its industry peers.
In terms of returns from investment, Deltic Timber has not invested its equity funds well, leading to a 2.56% return on equity (ROE), below the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 2.60% is below the US Forestry industry of 7.95%, indicating Deltic Timber’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Deltic Timber’s debt level, has declined over the past 3 years from 5.72% to 1.59%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 27.18% to 90.34% over the past 5 years.
What does this mean?
Though Deltic Timber’s past data is helpful, it is only one aspect of my investment thesis. In some cases, companies that face a drawn out period of decline in earnings are going through some sort of reinvestment phase with the aim of keeping up with the latest industry disruption and growth. I suggest you continue to research Deltic Timber to get a better picture of the stock by looking at:
- Financial Health: Is DEL’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Valuation: What is DEL worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether DEL is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 31 December 2017. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.