After reading Silicom Ltd’s (NASDAQ:SILC) most recent earnings announcement (30 September 2018), I found it useful to look back at how the company has performed in the past 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 a crucial aspect. Below is a brief commentary on my key takeaways.
Was SILC weak performance lately part of a long-term decline?
SILC’s trailing twelve-month earnings (from 30 September 2018) of US$15m has declined by -5.2% 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 0.7%, indicating the rate at which SILC is growing has slowed down. Why could this be happening? Let’s examine what’s transpiring with margins and whether the whole industry is experiencing the hit as well.
In terms of returns from investment, Silicom has fallen short of achieving a 20% return on equity (ROE), recording 10% instead. However, its return on assets (ROA) of 8.2% exceeds the US Communications industry of 4.6%, indicating Silicom has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Silicom’s debt level, has declined over the past 3 years from 18% to 12%.
What does this mean?
Though Silicom’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 impacting its business. You should continue to research Silicom to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SILC’s future growth? Take a look at our free research report of analyst consensus for SILC’s outlook.
- Financial Health: Are SILC’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 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.