After looking at inTEST Corporation’s (NYSEMKT:INTT) latest earnings announcement (30 June 2018), I found it useful to revisit the company’s performance in the past couple of years and assess this against the most recent figures. 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.
Was INTT’s weak performance lately a part of a long-term decline?
INTT’s trailing twelve-month earnings (from 30 June 2018) of US$1.8m has more than halved from US$2.7m in the prior year. Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of -18.9%, indicating the rate at which INTT is growing has slowed down. Why is this? Well, let’s look at what’s transpiring with margins and if the whole industry is feeling the heat.
Revenue growth over the last couple of years, has been positive, nevertheless earnings growth has been falling. This suggest that inTEST has been ramping up expenses, which is hurting margins and earnings, and is not a sustainable practice. Looking at growth from a sector-level, the US semiconductor industry has been growing, albeit, at a muted single-digit rate of 5.1% over the past year, and a substantial 19.1% over the past five years. This growth is a median of profitable companies of 24 Semiconductor companies in US including Hanwha Q CELLS, Integrated Device Technology and Ambarella. This suggests that whatever uplift the industry is deriving benefit from, inTEST has not been able to realize the gains unlike its average peer.
In terms of returns from investment, inTEST has fallen short of achieving a 20% return on equity (ROE), recording 4.2% instead. Furthermore, its return on assets (ROA) of 3.0% is below the US Semiconductor industry of 7.7%, indicating inTEST’s are utilized less efficiently. However, its return on capital (ROC), which also accounts for inTEST’s debt level, has increased over the past 3 years from 14.2% to 25.4%.
What does this mean?
Though inTEST’s past data is helpful, it is only one aspect of my investment thesis. Usually companies that endure an extended period of diminishing earnings are undergoing some sort of reinvestment phase with the aim of keeping up with the latest industry growth and disruption. I suggest you continue to research inTEST to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for INTT’s future growth? Take a look at our free research report of analyst consensus for INTT’s outlook.
- Financial Health: Are INTT’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 June 2018. This may not be consistent with full year annual report figures.
To help readers see past 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. For errors that warrant correction please contact the editor at email@example.com.