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Today I will examine FutureFuel Corp’s (NYSE:FF) latest earnings update (30 September 2017) and compare these figures against its performance over the past couple of years, in addition to how the rest of FF’s industry performed. As a long-term investor, I find it useful to analyze the company’s trend over time in order to estimate whether or not the company is able to meet its goals, and eventually grow sustainably over time. See our latest analysis for FutureFuel
Did FF perform worse than its track record and industry?
I use data from the most recent 12 months, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This method allows me to assess different companies in a uniform manner using new information. For FutureFuel, its most recent bottom-line (trailing twelve month) is US$26.28M, which compared to last year’s figure, has fallen by a substantial -60.75%. Since these values may be fairly nearsighted, I have calculated an annualized five-year value for FF’s net income, which stands at US$46.42M This doesn’t look much better, since earnings seem to have steadily been declining over time.
Why is this? Well, let’s take a look at what’s going on with margins and if the whole industry is experiencing the hit as well. Over the last few years, revenue growth has fallen behind earnings, which implies that FutureFuel’s bottom line has been propelled by unsustainable cost-cutting. Looking at growth from a sector-level, the US chemicals industry has been growing its average earnings by double-digit 16.03% in the past twelve months, and a less exciting 5.80% over the last five years. This means whatever tailwind the industry is deriving benefit from, FutureFuel has not been able to leverage it as much as its industry peers.
What does this mean?
Though FutureFuel’s past data is helpful, it is only one aspect of my investment thesis. Generally companies that experience a prolonged period of decline in earnings are undergoing some sort of reinvestment phase with the aim of keeping up with the latest industry disruption and expansion. I recommend you continue to research FutureFuel to get a more holistic view of the stock by looking at:
1. Financial Health: Is FF’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.
2. Valuation: What is FF worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether FF is currently mispriced by the market.
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 September 2017. 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.