Measuring Electromed Inc’s (NYSEMKT:ELMD) track record of past performance is an insightful exercise for investors. It enables us to reflect on whether the company has met or exceed expectations, which is a powerful signal for future performance. Below, I will assess ELMD’s recent performance announced on 31 March 2018 and compare these figures to its historical trend and industry movements.
Did ELMD beat its long-term earnings growth trend and its industry?
ELMD’s trailing twelve-month earnings (from 31 March 2018) of US$1.7m has increased by 6.8% 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 33.6%, indicating the rate at which ELMD is growing has slowed down. Why could this be happening? Well, let’s examine what’s going on with margins and if the entire industry is feeling the heat.
Over the past few years, revenue growth has fallen behind which suggests that Electromed’s bottom line has been propelled by unsustainable cost-reductions. Viewing growth from a sector-level, the US medical equipment industry has been growing, albeit, at a muted single-digit rate of 9.7% in the past year, and 9.4% over the previous five years. This growth is a median of profitable companies of 25 Medical Equipment companies in US including Arjo, WNDM Medical and Nanosonics. This suggests that whatever uplift the industry is deriving benefit from, Electromed has not been able to realize the gains unlike its average peer.
In terms of returns from investment, Electromed has fallen short of achieving a 20% return on equity (ROE), recording 8.4% instead. Furthermore, its return on assets (ROA) of 7.2% is below the US Medical Equipment industry of 7.7%, indicating Electromed’s are utilized less efficiently. However, its return on capital (ROC), which also accounts for Electromed’s debt level, has increased over the past 3 years from 7.0% to 14.3%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 13.7% to 5.4% over the past 5 years.
What does this mean?
Though Electromed’s past data is helpful, it is only one aspect of my investment thesis. Companies that have performed well in the past, such as Electromed gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. You should continue to research Electromed to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ELMD’s future growth? Take a look at our free research report of analyst consensus for ELMD’s outlook.
- Financial Health: Are ELMD’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 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 email@example.com.