Understanding how NewMarket Corporation (NYSE:NEU) is performing as a company requires looking at more than just a years' earnings. Today I will run you through a basic sense check to gain perspective on how NewMarket is doing by comparing its latest earnings with its long-term trend as well as the performance of its chemicals industry peers.
How Well Did NEU Perform?
NEU's trailing twelve-month earnings (from 31 December 2019) of US$254m has increased by 8.4% compared to the previous year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of -0.5%, indicating the rate at which NEU is growing has accelerated. How has it been able to do this? Let's take a look at if it is solely due to an industry uplift, or if NewMarket has experienced some company-specific growth.
In terms of returns from investment, NewMarket has invested its equity funds well leading to a 37% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 15% exceeds the US Chemicals industry of 6.2%, indicating NewMarket has used its assets more efficiently. However, its return on capital (ROC), which also accounts for NewMarket’s debt level, has declined over the past 3 years from 32% to 23%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 91% to 94% over the past 5 years.
What does this mean?
NewMarket's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. While NewMarket has a good historical track record with positive growth and profitability, there's no certainty that this will extrapolate into the future. I recommend you continue to research NewMarket to get a more holistic view of the stock by looking at:
- Financial Health: Are NEU’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 NEU 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 NEU 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 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.
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