When Stepan Company (NYSE:SCL) released its most recent earnings update (31 December 2019), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Understanding how Stepan performed requires a benchmark rather than trying to assess a standalone number at one point in time. Below is a quick commentary on how I see SCL has performed.
Was SCL's recent earnings decline indicative of a tough track record?
SCL's trailing twelve-month earnings (from 31 December 2019) of US$103m has declined by -7.2% 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 10%, indicating the rate at which SCL is growing has slowed down. Why is this? Let's examine what's occurring with margins and whether the entire industry is feeling the heat.
In terms of returns from investment, Stepan has fallen short of achieving a 20% return on equity (ROE), recording 12% instead. However, its return on assets (ROA) of 6.9% exceeds the US Chemicals industry of 6.1%, indicating Stepan has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Stepan’s debt level, has declined over the past 3 years from 13% to 10%.
What does this mean?
Stepan's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. Companies that are profitable, but have volatile earnings, can have many factors impacting its business. I recommend you continue to research Stepan to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SCL’s future growth? Take a look at our free research report of analyst consensus for SCL’s outlook.
- Financial Health: Are SCL’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 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.