After reading Franklin Electric Co Inc’s (NASDAQ:FELE) most recent earnings announcement (31 March 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. View out our latest analysis for Franklin Electric
Commentary On FELE’s Past Performance
FELE’s trailing twelve-month earnings (from 31 March 2018) of US$83.02m has increased by 4.15% compared to the previous year. Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 1.99%, indicating the rate at which FELE is growing has accelerated. How has it been able to do this? Let’s take a look at whether it is solely a result of an industry uplift, or if Franklin Electric has experienced some company-specific growth.
The hike in earnings seems to be propelled by a robust top-line increase beating its growth rate of costs. Though this brought about a margin contraction, it has made Franklin Electric more profitable. Looking at growth from a sector-level, the US machinery industry has been growing its average earnings by double-digit 23.44% over the prior twelve months, and a more subdued 4.62% over the last five years. This means whatever uplift the industry is benefiting from, Franklin Electric has not been able to gain as much as its average peer.
In terms of returns from investment, Franklin Electric has not invested its equity funds well, leading to a 11.59% return on equity (ROE), below the sensible minimum of 20%. However, its return on assets (ROA) of 7.38% exceeds the US Machinery industry of 5.76%, indicating Franklin Electric has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Franklin Electric’s debt level, has declined over the past 3 years from 11.92% to 11.27%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 35.64% to 38.41% over the past 5 years.
What does this mean?
Franklin Electric’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Companies that have performed well in the past, such as Franklin Electric gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. You should continue to research Franklin Electric to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for FELE’s future growth? Take a look at our free research report of analyst consensus for FELE’s outlook.
- Financial Health: Is FELE’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 March 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.