Should II-VI Incorporated’s (NASDAQ:IIVI) Recent Earnings Decline Worry You?
After reading II-VI Incorporated’s (NASDAQ:IIVI) latest earnings update (30 September 2018), 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 IIVI has outperformed, or whether it is simply riding an industry wave. Below is a brief commentary on my key takeaways.
See our latest analysis for II-VI
How Did IIVI’s Recent Performance Stack Up Against Its Past?
IIVI’s trailing twelve-month earnings (from 30 September 2018) of US$93m has declined by -7.1% compared to the previous year.
Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 16%, indicating the rate at which IIVI is growing has slowed down. Why could this be happening? Let’s examine what’s occurring with margins and whether the entire industry is feeling the heat.
In terms of returns from investment, II-VI has fallen short of achieving a 20% return on equity (ROE), recording 8.9% instead. However, its return on assets (ROA) of 6.0% exceeds the US Electronic industry of 5.5%, indicating II-VI has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for II-VI’s debt level, has declined over the past 3 years from 9.3% to 9.0%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 32% to 54% over the past 5 years.
What does this mean?
Though II-VI’s past data is helpful, it is only one aspect of my investment thesis. Companies that are profitable, but have unpredictable earnings, can have many factors affecting its business. You should continue to research II-VI to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for IIVI’s future growth? Take a look at our free research report of analyst consensus for IIVI’s outlook.
Financial Health: Are IIVI’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 September 2018. This may not be consistent with full year annual report figures.
To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
