When The Cato Corporation (NYSE:CATO) released its most recent earnings update (04 August 2018), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Understanding how Cato 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 CATO has performed.
Did CATO’s recent earnings growth beat the long-term trend and the industry?
CATO’s trailing twelve-month earnings (from 04 August 2018) of US$17m has increased by 3.1% compared to the previous year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of -20%, indicating the rate at which CATO is growing has accelerated. What’s enabled this growth? Let’s see whether it is solely due to an industry uplift, or if Cato has seen some company-specific growth.
In terms of returns from investment, Cato has fallen short of achieving a 20% return on equity (ROE), recording 5.2% instead. Furthermore, its return on assets (ROA) of 2.7% is below the US Specialty Retail industry of 7.3%, indicating Cato’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Cato’s debt level, has declined over the past 3 years from 21% to 9.0%.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Recent positive growth doesn’t necessarily mean it’s onwards and upwards for the company. There could be factors that are impacting the industry as a whole, hence the high industry growth rate over the same time period. I recommend you continue to research Cato to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CATO’s future growth? Take a look at our free research report of analyst consensus for CATO’s outlook.
- Financial Health: Are CATO’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 04 August 2018. This may not be consistent with full year annual report figures.
To help readers see past 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. For errors that warrant correction please contact the editor at email@example.com.