Today I will examine Key Tronic Corporation’s (NASDAQ:KTCC) latest earnings update (31 March 2018) and compare these figures against its performance over the past couple of years, in addition to how the rest of KTCC’s industry performed. As a long-term investor, I find it useful to analyze the company’s trend over time in order to estimate whether or not the company is able to meet its goals, and eventually grow sustainably over time. Check out our latest analysis for Key Tronic
Did KTCC perform worse than its track record and industry?
KTCC’s trailing twelve-month earnings (from 31 March 2018) of US$2.19m has more than halved from US$6.53m in the prior year. Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of -12.87%, indicating the rate at which KTCC is growing has slowed down. Why is this? Well, let’s take a look at what’s going on with margins and whether the rest of the industry is facing the same headwind.
Revenue growth in the last few years, has been positive, yet earnings growth has been declining. This suggest that Key Tronic has been increasing expenses, which is hurting margins and earnings, and is not a sustainable practice. Eyeballing growth from a sector-level, the US electronic industry has been growing its average earnings by double-digit 17.00% over the previous twelve months, and a less exciting 9.87% over the last five years. This means that any uplift the industry is deriving benefit from, Key Tronic has not been able to realize the gains unlike its industry peers.
In terms of returns from investment, Key Tronic has not invested its equity funds well, leading to a 1.80% return on equity (ROE), below the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 1.92% is below the US Electronic industry of 5.88%, indicating Key Tronic’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Key Tronic’s debt level, has declined over the past 3 years from 3.84% to 2.32%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 0.014% to 28.92% over the past 5 years.
What does this mean?
Though Key Tronic’s past data is helpful, it is only one aspect of my investment thesis. In some cases, companies that endure an extended period of diminishing earnings are going through some sort of reinvestment phase with the aim of keeping up with the recent industry expansion and disruption. I suggest you continue to research Key Tronic to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for KTCC’s future growth? Take a look at our free research report of analyst consensus for KTCC’s outlook.
- Financial Health: Is KTCC’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 pass 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.