When Kadant Inc. (NYSE:KAI) released its most recent earnings update (28 September 2019), I wanted to understand how these figures stacked up against its past performance. The two benchmarks I used were Kadant's average earnings over the past couple of years, and its industry performance. These are useful yardsticks to help me gauge whether or not KAI actually performed well. Below is a quick commentary on how I see KAI has performed.
Did KAI beat its long-term earnings growth trend and its industry?
KAI's trailing twelve-month earnings (from 28 September 2019) of US$62m has jumped 45% compared to the previous year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 16%, indicating the rate at which KAI is growing has accelerated. What's the driver of this growth? Let's see whether it is only a result of an industry uplift, or if Kadant has seen some company-specific growth.
In terms of returns from investment, Kadant has fallen short of achieving a 20% return on equity (ROE), recording 15% instead. However, its return on assets (ROA) of 7.8% exceeds the US Machinery industry of 7.5%, indicating Kadant has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Kadant’s debt level, has declined over the past 3 years from 13% to 12%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 8.8% to 77% over the past 5 years.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Companies that have performed well in the past, such as Kadant gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. You should continue to research Kadant to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for KAI’s future growth? Take a look at our free research report of analyst consensus for KAI’s outlook.
- Financial Health: Are KAI’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 September 2019. This may not be consistent with full year annual report figures.
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