After reading Semtech Corporation's (NasdaqGS:SMTC) latest earnings update (28 July 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 SMTC has outperformed, or whether it is simply riding an industry wave. Below is a brief commentary on my key takeaways.
Despite a decline, did SMTC underperform the long-term trend and the industry?
SMTC's trailing twelve-month earnings (from 28 July 2019) of US$44m has declined by -11% 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 56%, indicating the rate at which SMTC is growing has slowed down. What could be happening here? Well, let's look at what's going on with margins and if the rest of the industry is facing the same headwind.
In terms of returns from investment, Semtech has fallen short of achieving a 20% return on equity (ROE), recording 6.4% instead. Furthermore, its return on assets (ROA) of 5.1% is below the US Semiconductor industry of 7.9%, indicating Semtech's are utilized less efficiently. However, its return on capital (ROC), which also accounts for Semtech’s debt level, has increased over the past 3 years from 5.0% to 9.2%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 46% to 29% over the past 5 years.
What does this mean?
Semtech's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. Companies that are profitable, but have unpredictable earnings, can have many factors influencing its business. I recommend you continue to research Semtech to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SMTC’s future growth? Take a look at our free research report of analyst consensus for SMTC’s outlook.
- Financial Health: Are SMTC’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 28 July 2019. This may not be consistent with full year annual report figures.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Thank you for reading.