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Watsco, Inc. (NYSE:WSO): Has Recent Earnings Growth Beaten Long-Term Trend?

Simply Wall St

After reading Watsco, Inc.'s (NYSE:WSO) most recent earnings announcement (30 June 2019), 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.

See our latest analysis for Watsco

Did WSO's recent earnings growth beat the long-term trend and the industry?

WSO's trailing twelve-month earnings (from 30 June 2019) of US$224m has increased by 5.0% compared to the previous year.

However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 11%, indicating the rate at which WSO is growing has slowed down. Why could this be happening? Well, let's look at what's going on with margins and whether the rest of the industry is facing the same headwind.

NYSE:WSO Income Statement, August 17th 2019

In terms of returns from investment, Watsco has fallen short of achieving a 20% return on equity (ROE), recording 18% instead. However, its return on assets (ROA) of 8.6% exceeds the US Trade Distributors industry of 5.6%, indicating Watsco has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Watsco’s debt level, has declined over the past 3 years from 21% to 18%.

What does this mean?

While past data is useful, it doesn’t tell the whole story. While Watsco 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 Watsco to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for WSO’s future growth? Take a look at our free research report of analyst consensus for WSO’s outlook.
  2. Financial Health: Are WSO’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 30 June 2019. 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.