Today I will examine Innospec Inc.'s (NasdaqGS:IOSP) latest earnings update (31 December 2019) and compare these figures against its performance over the past couple of years, in addition to how the rest of IOSP'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.
Commentary On IOSP's Past Performance
IOSP's trailing twelve-month earnings (from 31 December 2019) of US$112m has jumped 32% compared to the previous year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of -3.7%, indicating the rate at which IOSP is growing has accelerated. What's enabled this growth? Let's see if it is solely owing to industry tailwinds, or if Innospec has seen some company-specific growth.
In terms of returns from investment, Innospec has fallen short of achieving a 20% return on equity (ROE), recording 12% instead. However, its return on assets (ROA) of 8.0% exceeds the US Chemicals industry of 6.1%, indicating Innospec has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Innospec’s debt level, has increased over the past 3 years from 10% to 14%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 27% to 6.4% over the past 5 years.
What does this mean?
While past data is useful, it doesn’t tell the whole story. While Innospec has a good historical track record with positive growth and profitability, there's no certainty that this will extrapolate into the future. I recommend you continue to research Innospec to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for IOSP’s future growth? Take a look at our free research report of analyst consensus for IOSP’s outlook.
Financial Health: Are IOSP’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 December 2019. This may not be consistent with full year annual report figures.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.
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