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.
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.
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:
- 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.
- 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.
- 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.
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