Assessing PACCAR Inc's (NasdaqGS:PCAR) performance as a company requires looking at more than just a years' earnings data. Below, I will run you through a simple sense check to build perspective on how PACCAR is doing by comparing its most recent earnings with its historical trend, in addition to the performance of its machinery industry peers.
Could PCAR beat the long-term trend and outperform its industry?
PCAR's trailing twelve-month earnings (from 30 September 2019) of US$2.4b has jumped 10% compared to the previous year.
However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 16%, indicating the rate at which PCAR is growing has slowed down. What could be happening here? Well, let's look at what's going on with margins and whether the entire industry is experiencing the hit as well.
In terms of returns from investment, PACCAR has invested its equity funds well leading to a 24% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 8.5% exceeds the US Machinery industry of 7.4%, indicating PACCAR has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for PACCAR’s debt level, has increased over the past 3 years from 11% to 13%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 115% to 109% over the past 5 years.
What does this mean?
Though PACCAR'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 PACCAR to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for PCAR’s future growth? Take a look at our free research report of analyst consensus for PCAR’s outlook.
- Financial Health: Are PCAR’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 30 September 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 email@example.com. 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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