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Does Federal Signal Corporation's (NYSE:FSS) 48% Earnings Growth Make It An Outperformer?

Simply Wall St

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After looking at Federal Signal Corporation's (NYSE:FSS) latest earnings announcement (31 March 2019), I found it useful to revisit the company's performance in the past couple of years and assess this against the most recent figures. 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.

Check out our latest analysis for Federal Signal

Could FSS beat the long-term trend and outperform its industry?

FSS's trailing twelve-month earnings (from 31 March 2019) of US$98m has jumped 48% compared to the previous year.

Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of -3.1%, indicating the rate at which FSS is growing has accelerated. What's the driver of this growth? Let's take a look at if it is solely owing to an industry uplift, or if Federal Signal has experienced some company-specific growth.

NYSE:FSS Income Statement, June 4th 2019

In terms of returns from investment, Federal Signal has fallen short of achieving a 20% return on equity (ROE), recording 18% instead. However, its return on assets (ROA) of 10% exceeds the US Machinery industry of 7.6%, indicating Federal Signal has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Federal Signal’s debt level, has declined over the past 3 years from 20% to 14%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 24% to 45% over the past 5 years.

What does this mean?

Though Federal Signal's past data is helpful, it is only one aspect of my investment thesis. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? You should continue to research Federal Signal to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for FSS’s future growth? Take a look at our free research report of analyst consensus for FSS’s outlook.
  2. Financial Health: Are FSS’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.
  3. 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 March 2019. This may not be consistent with full year annual report figures.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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.