After reading Ultra Clean Holdings Inc’s (NASDAQ:UCTT) latest earnings update (29 June 2018), 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 UCTT has outperformed, or whether it is simply riding an industry wave. Below is a brief commentary on my key takeaways.
Commentary On UCTT’s Past Performance
UCTT’s trailing twelve-month earnings (from 29 June 2018) of US$84.3m has jumped 79.8% compared to the previous year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 26.8%, indicating the rate at which UCTT is growing has accelerated. How has it been able to do this? Well, let’s take a look at if it is only a result of an industry uplift, or if Ultra Clean Holdings has seen some company-specific growth.
Over the last few years, Ultra Clean Holdings grew its bottom line faster than revenue by successfully controlling its costs. This has led to a margin expansion and profitability over time.
Looking at growth from a sector-level, the US semiconductor industry has been growing, albeit, at a muted single-digit rate of 6.2% over the prior twelve months, and a substantial 18.7% over the past five years. This growth is a median of profitable companies of 25 Semiconductor companies in US including Hanwha Q CELLS, Integrated Device Technology and CyberOptics. This means any tailwind the industry is deriving benefit from, Ultra Clean Holdings is capable of amplifying this to its advantage.
In terms of returns from investment, Ultra Clean Holdings has fallen short of achieving a 20% return on equity (ROE), recording 19.2% instead. However, its return on assets (ROA) of 13.4% exceeds the US Semiconductor industry of 7.4%, indicating Ultra Clean Holdings has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Ultra Clean Holdings’s debt level, has increased over the past 3 years from 2.8% to 20.4%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 42.6% to 12.5% over the past 5 years.
What does this mean?
Though Ultra Clean Holdings’s past data is helpful, it is only one aspect of my investment thesis. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? I suggest you continue to research Ultra Clean Holdings to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for UCTT’s future growth? Take a look at our free research report of analyst consensus for UCTT’s outlook.
- Financial Health: Are UCTT’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 29 June 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.