Applied Materials, Inc. (NASDAQ:AMAT): Does The Earnings Decline Make It An Underperformer?

After reading Applied Materials, Inc.’s (NasdaqGS:AMAT) latest earnings update (28 July 2019), I found it beneficial to look back at how the company has performed in the past and compare this against the most recent numbers. As a long-term investor I tend to pay attention to earnings trend, rather than a single number at one point in time. I also like to compare against an industry benchmark to understand whether AMAT has outperformed, or whether it is simply riding an industry wave. Below is a brief commentary on my key takeaways.

Check out our latest analysis for Applied Materials

How Well Did AMAT Perform?

AMAT’s trailing twelve-month earnings (from 28 July 2019) of US$3.0b has declined by -6.8% 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 27%, indicating the rate at which AMAT is growing has slowed down. Why could this be happening? Well, let’s look at what’s going on with margins and whether the whole industry is experiencing the hit as well.

NasdaqGS:AMAT Income Statement, October 4th 2019
NasdaqGS:AMAT Income Statement, October 4th 2019

In terms of returns from investment, Applied Materials 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 17% exceeds the US Semiconductor industry of 7.9%, indicating Applied Materials has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Applied Materials’s debt level, has increased over the past 3 years from 17% to 25%.

What does this mean?

Applied Materials’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Companies that are profitable, but have unpredictable earnings, can have many factors impacting its business. You should continue to research Applied Materials to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for AMAT’s future growth? Take a look at our free research report of analyst consensus for AMAT’s outlook.
  2. Financial Health: Are AMAT’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 28 July 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.