When Shiloh Industries Inc (NASDAQ:SHLO) released its most recent earnings update (30 April 2018), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Understanding how Shiloh Industries performed requires a benchmark rather than trying to assess a standalone number at one point in time. Below is a quick commentary on how I see SHLO has performed.
Was SHLO’s weak performance lately a part of a long-term decline?
SHLO’s trailing twelve-month earnings (from 30 April 2018) of US$5.98m has declined by -12.11% 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 -19.01%, indicating the rate at which SHLO is growing has slowed down. Why is this? Let’s examine what’s going on with margins and whether the entire industry is feeling the heat.
Revenue growth in the past few years, has been positive, nevertheless earnings growth has been falling. This means Shiloh Industries has been ramping up expenses, which is hurting margins and earnings, and is not a sustainable practice. Eyeballing growth from a sector-level, the US auto components industry has been growing its average earnings by double-digit 10.74% over the previous year, and 11.58% over the past five. This growth is a median of profitable companies of 24 Auto Components companies in US including Motorcar Parts of America, Cooper Tire & Rubber and Goodyear Tire & Rubber. This suggests that any tailwind the industry is enjoying, Shiloh Industries has not been able to reap as much as its industry peers.
In terms of returns from investment, Shiloh Industries has fallen short of achieving a 20% return on equity (ROE), recording 2.99% instead. Furthermore, its return on assets (ROA) of 2.37% is below the US Auto Components industry of 6.49%, indicating Shiloh Industries’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Shiloh Industries’s debt level, has declined over the past 3 years from 5.54% to 3.45%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 77.98% to 128.75% over the past 5 years.
What does this mean?
Shiloh Industries’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Usually companies that endure a drawn out period of diminishing earnings are going through some sort of reinvestment phase with the aim of keeping up with the recent industry growth and disruption. You should continue to research Shiloh Industries to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SHLO’s future growth? Take a look at our free research report of analyst consensus for SHLO’s outlook.
- Financial Health: Are SHLO’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 April 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 firstname.lastname@example.org.