For long-term investors, assessing earnings trend over time and against industry benchmarks is more beneficial than examining a single earnings announcement at a point in time. Investors may find my commentary, albeit very high-level and brief, on Archer-Daniels-Midland Company (NYSE:ADM) useful as an attempt to give more color around how Archer-Daniels-Midland is currently performing.
Commentary On ADM's Past Performance
ADM's trailing twelve-month earnings (from 31 March 2020) of US$1.5b has declined by -6.6% 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 -6.0%, indicating the rate at which ADM is growing has slowed down. Why is this? Let's examine what's transpiring with margins and if the whole industry is experiencing the hit as well.
In terms of returns from investment, Archer-Daniels-Midland has fallen short of achieving a 20% return on equity (ROE), recording 8.1% instead. Furthermore, its return on assets (ROA) of 3.6% is below the US Food industry of 6.7%, indicating Archer-Daniels-Midland's are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Archer-Daniels-Midland’s debt level, has declined over the past 3 years from 6.5% to 5.2%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 34% to 66% over the past 5 years.
What does this mean?
Archer-Daniels-Midland's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. Generally companies that face a prolonged period of reduction in 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 Archer-Daniels-Midland and its peers a higher risk investment. I recommend you continue to research Archer-Daniels-Midland to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ADM’s future growth? Take a look at our free research report of analyst consensus for ADM’s outlook.
- Financial Health: Are ADM’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 31 March 2020. This may not be consistent with full year annual report figures.
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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Thank you for reading.