After reading Educational Development Corporation’s (NASDAQ:EDUC) most recent earnings announcement (31 August 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.
How EDUC fared against its long-term earnings performance and its industry
EDUC’s trailing twelve-month earnings (from 31 August 2018) of US$6.3m has jumped 50% compared to the previous year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 49%, indicating the rate at which EDUC is growing has accelerated. How has it been able to do this? Well, let’s take a look at if it is only because of industry tailwinds, or if Educational Development has experienced some company-specific growth.
In terms of returns from investment, Educational Development has invested its equity funds well leading to a 27% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 11% exceeds the US Retail Distributors industry of 7.0%, indicating Educational Development has used its assets more efficiently. However, its return on capital (ROC), which also accounts for Educational Development’s debt level, has declined over the past 3 years from 20% to 19%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 9.6% to 97% over the past 5 years.
What does this mean?
Educational Development’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 Educational Development to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for EDUC’s future growth? Take a look at our free research report of analyst consensus for EDUC’s outlook.
- Financial Health: Are EDUC’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 August 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 firstname.lastname@example.org.