U.S. Markets closed

Does KLA Corporation's (NASDAQ:KLAC) 47% Earnings Growth Make It An Outperformer?

Simply Wall St

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.

See our latest analysis for KLA

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.

NasdaqGS:KLAC Income Statement, October 19th 2019

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:

  1. 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.
  2. 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.
  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.