After reading Alamo Group Inc.'s (NYSE:ALG) latest earnings update (30 June 2019), 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 ALG has outperformed, or whether it is simply riding an industry wave. Below is a brief commentary on my key takeaways.
Did ALG's recent earnings growth beat the long-term trend and the industry?
ALG's trailing twelve-month earnings (from 30 June 2019) of US$76m has jumped 43% compared to the previous year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 13%, indicating the rate at which ALG is growing has accelerated. How has it been able to do this? Well, let’s take a look at whether it is solely a result of an industry uplift, or if Alamo Group has seen some company-specific growth.
In terms of returns from investment, Alamo Group has fallen short of achieving a 20% return on equity (ROE), recording 14% instead. However, its return on assets (ROA) of 9.4% exceeds the US Machinery industry of 7.5%, indicating Alamo Group has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Alamo Group’s debt level, has declined over the past 3 years from 15% to 14%.
What does this mean?
Alamo Group's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. Companies that have performed well in the past, such as Alamo Group gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. I recommend you continue to research Alamo Group to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ALG’s future growth? Take a look at our free research report of analyst consensus for ALG’s outlook.
- Financial Health: Are ALG’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 June 2019. This may not be consistent with full year annual report figures.
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