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W.W. Grainger, Inc. (NYSE:GWW): Has Recent Earnings Growth Beaten Long-Term Trend?

Simply Wall St

After reading W.W. Grainger, Inc.’s (NYSE:GWW) most recent earnings announcement (31 December 2018), I found it useful to look back at how the company has performed in the past and compare this against the latest numbers. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is a crucial aspect. Below is a brief commentary on my key takeaways.

Check out our latest analysis for W.W. Grainger

Were GWW’s earnings stronger than its past performances and the industry?

GWW’s trailing twelve-month earnings (from 31 December 2018) of US$776m has jumped 34% compared to the previous year.

Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of -4.9%, indicating the rate at which GWW is growing has accelerated. What’s enabled this growth? Well, let’s take a look at if it is only a result of industry tailwinds, or if W.W. Grainger has experienced some company-specific growth.

NYSE:GWW Income Statement, March 11th 2019

In terms of returns from investment, W.W. Grainger has invested its equity funds well leading to a 39% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 15% exceeds the US Trade Distributors industry of 5.8%, indicating W.W. Grainger has used its assets more efficiently. However, its return on capital (ROC), which also accounts for W.W. Grainger’s debt level, has declined over the past 3 years from 33% to 31%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 16% to 106% over the past 5 years.

What does this mean?

Though W.W. Grainger’s past data is helpful, it is only one aspect of my investment thesis. While W.W. Grainger has a good historical track record with positive growth and profitability, there’s no certainty that this will extrapolate into the future. You should continue to research W.W. Grainger to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for GWW’s future growth? Take a look at our free research report of analyst consensus for GWW’s outlook.
  2. Financial Health: Are GWW’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.
  3. 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 2018. This may not be consistent with full year annual report figures.

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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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. Thank you for reading.