In this commentary, I will examine Sensient Technologies Corporation's (NYSE:SXT) latest earnings update (30 September 2019) and compare these figures against its performance over the past couple of years, as well as how the rest of the chemicals industry performed. As an investor, I find it beneficial to assess SXT’s trend over the short-to-medium term in order to gauge whether or not the company is able to meet its goals, and ultimately sustainably grow over time.
How Well Did SXT Perform?
SXT's trailing twelve-month earnings (from 30 September 2019) of US$132m has declined by -4.4% 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 8.7%, indicating the rate at which SXT is growing has slowed down. Why could this be happening? Well, let’s take a look at what’s occurring with margins and whether the whole industry is feeling the heat.
In terms of returns from investment, Sensient Technologies has fallen short of achieving a 20% return on equity (ROE), recording 15% instead. However, its return on assets (ROA) of 8.6% exceeds the US Chemicals industry of 6.9%, indicating Sensient Technologies has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Sensient Technologies’s debt level, has declined over the past 3 years from 13% to 11%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 42% to 71% over the past 5 years.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Companies that are profitable, but have capricious earnings, can have many factors affecting its business. I recommend you continue to research Sensient Technologies to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SXT’s future growth? Take a look at our free research report of analyst consensus for SXT’s outlook.
- Financial Health: Are SXT’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 30 September 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 email@example.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.
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