When Daktronics Inc (NASDAQ:DAKT) released its most recent earnings update (28 April 2018), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Understanding how Daktronics 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 DAKT has performed. View out our latest analysis for Daktronics
Was DAKT’s recent earnings decline worse than the long-term trend and the industry?
DAKT’s trailing twelve-month earnings (from 28 April 2018) of US$5.56m has declined by -46.00% 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 -10.08%, indicating the rate at which DAKT is growing has slowed down. What could be happening here? Well, let’s take a look at what’s occurring with margins and if the whole industry is feeling the heat.
Revenue growth over the past few years, has been positive, yet earnings growth has been falling. This suggest that Daktronics has been ramping up expenses, which is hurting margins and earnings, and is not a sustainable practice. Scanning growth from a sector-level, the US electronic industry has been growing its average earnings by double-digit 16.59% in the prior year, and 10.17% over the past five. This shows that whatever tailwind the industry is enjoying, Daktronics has not been able to gain as much as its average peer.
In terms of returns from investment, Daktronics has not invested its equity funds well, leading to a 2.82% return on equity (ROE), below the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 1.41% is below the US Electronic industry of 5.88%, indicating Daktronics’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Daktronics’s debt level, has declined over the past 3 years from 13.35% to 5.46%.
What does this mean?
Though Daktronics’s past data is helpful, it is only one aspect of my investment thesis. Generally companies that experience an extended period of reduction in earnings are going through some sort of reinvestment phase in order to keep up with the latest industry expansion and disruption. You should continue to research Daktronics to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for DAKT’s future growth? Take a look at our free research report of analyst consensus for DAKT’s outlook.
- Financial Health: Is DAKT’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 28 April 2018. This may not be consistent with full year annual report figures.
To help readers see pass 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.