Improvement in profitability and outperformance against the industry can be important characteristics in a stock for some investors. Below, I will assess NewMarket Corporation’s (NYSE:NEU) track record on a high level, to give you some insight into how the company has been performing against its historical trend and its industry peers.
How NEU fared against its long-term earnings performance and its industry
NEU’s trailing twelve-month earnings (from 31 December 2019) of US$254m has increased by 8.4% compared to the previous year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of -0.5%, indicating the rate at which NEU is growing has accelerated. What’s the driver of this growth? Let’s take a look at if it is only due to industry tailwinds, or if NewMarket has seen some company-specific growth.
In terms of returns from investment, NewMarket 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 15% exceeds the US Chemicals industry of 6.0%, indicating NewMarket has used its assets more efficiently. However, its return on capital (ROC), which also accounts for NewMarket’s debt level, has declined over the past 3 years from 32% to 23%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 91% to 94% over the past 5 years.
What does this mean?
NewMarket’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Companies that have performed well in the past, such as NewMarket gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. I suggest you continue to research NewMarket to get a more holistic view of the stock by looking at:
- Financial Health: Are NEU’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.
- Valuation: What is NEU worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether NEU is currently mispriced by the market.
- 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 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 firstname.lastname@example.org. 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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