In this commentary, I will examine Watsco, Inc.’s (NYSE:WSO) latest earnings update (30 June 2019) and compare these figures against its performance over the past couple of years, as well as how the rest of the trade distributors industry performed. As an investor, I find it beneficial to assess WSO’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.
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. To understand what’s happening, let’s take a look at what’s transpiring with margins and if the entire industry is facing the same headwind.
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. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? I suggest you continue to research Watsco to get a better picture of the stock by looking at:
- 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.
- 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.
- 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.
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