Analyzing Parker-Hannifin Corporation’s (NYSE:PH) track record of past performance is a valuable exercise for investors. It enables us to reflect on whether or not the company has met expectations, which is a powerful signal for future performance. Today I will assess PH’s recent performance announced on 31 December 2017 and compare these figures to its long-term trend and industry movements. See our latest analysis for Parker-Hannifin
Was PH weak performance lately part of a long-term decline?
I look at the ‘latest twelve-month’ data, which either annualizes the most recent 6-month earnings update, or in some cases, the most recent annual report is already the latest available financial data. This technique allows me to examine various companies in a uniform manner using the most relevant data points. For Parker-Hannifin, its latest trailing-twelve-month earnings is US$873.53M, which, against the prior year’s level, has plunged by -0.77%. Given that these figures are relatively short-term, I have determined an annualized five-year figure for Parker-Hannifin’s net income, which stands at US$993.46M This suggests that Parker-Hannifin’s average annual earnings have historically been larger, which signifies a declining trend in earnings.
Why could this be happening? Well, let’s examine what’s going on with margins and if the rest of the industry is facing the same headwind. Although revenue growth in the past few years, has been negative, earnings growth has been deteriorating by even more, meaning Parker-Hannifin has been growing its expenses. This harms margins and earnings, and is not a sustainable practice. Inspecting growth from a sector-level, the US machinery industry has been growing its average earnings by double-digit 21.54% in the previous year, and a more muted 3.71% over the past five years. This means whatever tailwind the industry is deriving benefit from, Parker-Hannifin has not been able to gain as much as its industry peers.
What does this mean?
Parker-Hannifin’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Usually companies that experience a prolonged period of reduction in earnings are going through some sort of reinvestment phase with the aim of keeping up with the latest industry expansion and disruption. You should continue to research Parker-Hannifin to get a more holistic view of the stock by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for PH’s future growth? Take a look at our free research report of analyst consensus for PH’s outlook.
- 2. Financial Health: Is PH’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 2017. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.