For long term investors, improvement in profitability and outperformance against the industry can be important characteristics in a stock. In this article, I will take a look at Eaton Corporation plc's (NYSE:ETN) track record on a high level, to give you some insight into how the company has been performing against its historical trend and its industry peers.
How ETN fared against its long-term earnings performance and its industry
ETN's trailing twelve-month earnings (from 30 September 2019) of US$2.4b has jumped 11% compared to the previous year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 7.0%, indicating the rate at which ETN is growing has accelerated. What's the driver of this growth? Well, let’s take a look at if it is only a result of an industry uplift, or if Eaton has seen some company-specific growth.
In terms of returns from investment, Eaton has fallen short of achieving a 20% return on equity (ROE), recording 15% instead. However, its return on assets (ROA) of 8.3% exceeds the US Electrical industry of 7.9%, indicating Eaton has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Eaton’s debt level, has increased over the past 3 years from 8.8% to 11%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 54% to 51% over the past 5 years.
What does this mean?
Eaton's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? I recommend you continue to research Eaton to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ETN’s future growth? Take a look at our free research report of analyst consensus for ETN’s outlook.
- Financial Health: Are ETN’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.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Thank you for reading.