For investors with a long-term horizon, examining earnings trend over time and against industry peers is more insightful than looking at an earnings announcement in one point in time. Investors may find my commentary, albeit very high-level and brief, on Lindsay Corporation (NYSE:LNN) useful as an attempt to give more color around how Lindsay is currently performing.
How Well Did LNN Perform?
LNN’s trailing twelve-month earnings (from 31 May 2018) of US$21.6m has declined by -12.2% 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 -14.9%, indicating the rate at which LNN is growing has slowed down. Why could this be happening? Well, let’s look at what’s occurring with margins and if the rest of the industry is feeling the heat.
Although revenue growth over the last couple of years, has been negative, earnings growth has been declining by even more, implying that Lindsay has been growing its expenses. This hurts margins and earnings, and is not a sustainable practice. Viewing growth from a sector-level, the US machinery industry has been growing its average earnings by double-digit 23.2% over the previous year, and a less exciting 5.6% over the last five years. This growth is a median of profitable companies of 25 Machinery companies in US including COSCO Shipping International (Singapore), IHI and Omni-Lite Industries Canada. This means that any tailwind the industry is profiting from, Lindsay has not been able to reap as much as its average peer.
In terms of returns from investment, Lindsay has fallen short of achieving a 20% return on equity (ROE), recording 7.8% instead. Furthermore, its return on assets (ROA) of 4.8% is below the US Machinery industry of 6.2%, indicating Lindsay’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Lindsay’s debt level, has declined over the past 3 years from 13.4% to 9.1%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 0.3% to 42.1% over the past 5 years.
What does this mean?
Lindsay’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. In some cases, companies that face a drawn out period of reduction in earnings are undergoing some sort of reinvestment phase in order to keep up with the latest industry growth and disruption. I recommend you continue to research Lindsay to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for LNN’s future growth? Take a look at our free research report of analyst consensus for LNN’s outlook.
- Financial Health: Are LNN’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 May 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.