After reading KLA Corporation's (NasdaqGS:KLAC) most recent earnings announcement (30 June 2019), 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.
Did KLAC's recent earnings growth beat the long-term trend and the industry?
KLAC's trailing twelve-month earnings (from 30 June 2019) of US$1.2b has jumped 47% compared to the previous year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 21%, indicating the rate at which KLAC is growing has accelerated. What's the driver of this growth? Well, let’s take a look at if it is only attributable to an industry uplift, or if KLA has seen some company-specific growth.
In terms of returns from investment, KLA has invested its equity funds well leading to a 44% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 14% exceeds the US Semiconductor industry of 7.9%, indicating KLA has used its assets more efficiently. However, its return on capital (ROC), which also accounts for KLA’s debt level, has declined over the past 3 years from 24% to 19%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 20% to 128% over the past 5 years.
What does this mean?
Though KLA'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? I suggest you continue to research KLA to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for KLAC’s future growth? Take a look at our free research report of analyst consensus for KLAC’s outlook.
- Financial Health: Are KLAC’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 30 June 2019. This may not be consistent with full year annual report figures.
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