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For investors with a long-term horizon, assessing earnings trend over time and against industry benchmarks is more valuable than looking at a single earnings announcement in one point in time. Investors may find my commentary, albeit very high-level and brief, on Mueller Industries, Inc. (NYSE:MLI) useful as an attempt to give more color around how Mueller Industries is currently performing.
Despite a decline, did MLI underperform the long-term trend and the industry?
MLI's trailing twelve-month earnings (from 28 December 2019) of US$101m has declined by -3.1% 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 -0.4%, indicating the rate at which MLI is growing has slowed down. Why is this? Let's examine what's occurring with margins and whether the whole industry is experiencing the hit as well.
In terms of returns from investment, Mueller Industries has fallen short of achieving a 20% return on equity (ROE), recording 16% instead. However, its return on assets (ROA) of 9.2% exceeds the US Machinery industry of 6.5%, indicating Mueller Industries has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Mueller Industries’s debt level, has increased over the past 3 years from 13% to 17%.
What does this mean?
While past data is useful, it doesn’t tell the whole story. In some cases, companies that endure a prolonged period of diminishing earnings are undergoing some sort of reinvestment phase However, if the whole industry is struggling to grow over time, it may be a sign of a structural shift, which makes Mueller Industries and its peers a riskier investment. I suggest you continue to research Mueller Industries to get a better picture of the stock by looking at:
Financial Health: Are MLI’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.
Valuation: What is MLI worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether MLI is currently mispriced by the market.
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 December 2019. This may not be consistent with full year annual report figures.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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