After reading Franklin Electric Co., Inc.'s (NasdaqGS:FELE) latest earnings update (31 March 2020), I found it beneficial to look back at how the company has performed in the past and compare this against the most recent numbers. As a long-term investor I tend to pay attention to earnings trend, rather than a single number at one point in time. I also like to compare against an industry benchmark to understand whether FELE has outperformed, or whether it is simply riding an industry wave. Below is a brief commentary on my key takeaways.
Did FELE beat its long-term earnings growth trend and its industry?
FELE's trailing twelve-month earnings (from 31 March 2020) of US$96m has increased by 3.6% compared to the previous year.
However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 9.3%, indicating the rate at which FELE is growing has slowed down. What could be happening here? Well, let's look at what's occurring with margins and whether the whole industry is feeling the heat.
In terms of returns from investment, Franklin Electric has fallen short of achieving a 20% return on equity (ROE), recording 13% instead. However, its return on assets (ROA) of 9.0% exceeds the US Machinery industry of 6.2%, indicating Franklin Electric has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Franklin Electric’s debt level, has increased over the past 3 years from 12% to 14%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 41% to 18% over the past 5 years.
What does this mean?
While past data is useful, it doesn’t tell the whole story. 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 Franklin Electric to get a better picture 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: Are 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 2020. This may not be consistent with full year annual report figures.
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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Thank you for reading.