Today I will examine KEMET Corporation’s (NYSE:KEM) latest earnings update (30 June 2018) and compare these figures against its performance over the past couple of years, in addition to how the rest of KEM’s industry performed. As a long-term investor, I find it useful to analyze the company’s trend over time in order to estimate whether or not the company is able to meet its goals, and eventually grow sustainably over time.
Was KEM’s recent earnings decline indicative of a tough track record?
KEM’s trailing twelve-month earnings (from 30 June 2018) of US$69.3m has more than halved from US$48.0m in the prior year.
Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 38.9%, indicating the rate at which KEM is growing has slowed down. Why is this? Let’s examine what’s occurring with margins and if the rest of the industry is experiencing the hit as well.
Over the past few years, revenue growth has fallen behind which implies that KEMET’s bottom line has been driven by unsustainable cost-reductions.
Eyeballing growth from a sector-level, the US electronic industry has been growing, albeit, at a subdued single-digit rate of 6.0% in the previous year, and 6.4% over the previous five years. This growth is a median of profitable companies of 24 Electronic companies in US including Bonso Electronics International, Coda Octopus Group and AmpliTech Group. This shows that any uplift the industry is profiting from, KEMET has not been able to leverage it as much as its average peer.
In terms of returns from investment, KEMET has fallen short of achieving a 20% return on equity (ROE), recording 14.8% instead. However, its return on assets (ROA) of 8.2% exceeds the US Electronic industry of 6.0%, indicating KEMET has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for KEMET’s debt level, has increased over the past 3 years from 0.03% to 13.0%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 157% to 68.3% over the past 5 years.
What does this mean?
Though KEMET’s past data is helpful, it is only one aspect of my investment thesis. Companies that are profitable, but have unpredictable earnings, can have many factors influencing its business. I suggest you continue to research KEMET to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for KEM’s future growth? Take a look at our free research report of analyst consensus for KEM’s outlook.
- Financial Health: Are KEM’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 June 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.