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Does Genuine Parts Company's (NYSE:GPC) 18% Earnings Growth Make It An Outperformer?

Simply Wall St

After looking at Genuine Parts Company's (NYSE:GPC) latest earnings update (30 June 2019), I found it helpful to revisit the company's performance in the past couple of years 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 an important aspect. In this article I briefly touch on my key findings.

See our latest analysis for Genuine Parts

Did GPC's recent earnings growth beat the long-term trend and the industry?

GPC's trailing twelve-month earnings (from 30 June 2019) of US$792m has jumped 18% compared to the previous year.

Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 1.3%, indicating the rate at which GPC is growing has accelerated. How has it been able to do this? Let's take a look at whether it is only a result of an industry uplift, or if Genuine Parts has seen some company-specific growth.

NYSE:GPC Income Statement, August 27th 2019

In terms of returns from investment, Genuine Parts has invested its equity funds well leading to a 21% return on equity (ROE), above the sensible minimum of 20%. However, its return on assets (ROA) of 6.0% is below the US Retail Distributors industry of 7.2%, indicating Genuine Parts's are utilized less efficiently. Furthermore, its return on capital (ROC), which also accounts for Genuine Parts’s debt level, has declined over the past 3 years from 26% to 14%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 22% to 105% over the past 5 years.

What does this mean?

Genuine Parts's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. While Genuine Parts has a good historical track record with positive growth and profitability, there's no certainty that this will extrapolate into the future. I suggest you continue to research Genuine Parts to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for GPC’s future growth? Take a look at our free research report of analyst consensus for GPC’s outlook.
  2. Financial Health: Are GPC’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 30 June 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.