When Alaska Air Group, Inc. (NYSE:ALK) announced its most recent earnings (30 September 2019), I did two things: looked at its past earnings track record, then look at what is happening in the industry. Understanding how Alaska Air Group performed requires a benchmark rather than trying to assess a standalone number at one point in time. Below is a quick commentary on how I see ALK has performed.
Did ALK perform worse than its track record and industry?
ALK's trailing twelve-month earnings (from 30 September 2019) of US$611m has declined by -16% 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 -3.6%, indicating the rate at which ALK is growing has slowed down. What could be happening here? Well, let's look at what's occurring with margins and if the whole industry is experiencing the hit as well.
In terms of returns from investment, Alaska Air Group has fallen short of achieving a 20% return on equity (ROE), recording 14% instead. Furthermore, its return on assets (ROA) of 4.9% is below the US Airlines industry of 6.6%, indicating Alaska Air Group's are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Alaska Air Group’s debt level, has declined over the past 3 years from 22% to 10%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 38% to 40% over the past 5 years.
What does this mean?
Alaska Air Group's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. Typically companies that endure an extended period of diminishing earnings are going through some sort of reinvestment phase Though if the whole industry is struggling to grow over time, it may be a signal of a structural shift, which makes Alaska Air Group and its peers a higher risk investment. I suggest you continue to research Alaska Air Group to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ALK’s future growth? Take a look at our free research report of analyst consensus for ALK’s outlook.
- Financial Health: Are ALK’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.
- 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 30 September 2019. This may not be consistent with full year annual report figures.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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