Increase in profitability and industry-beating performance can be essential considerations in a stock for some investors. In this article, I will take a look at A. O. Smith Corporation’s (NYSE:AOS) 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.
Was AOS’s weak performance lately a part of a long-term decline?
AOS’s trailing twelve-month earnings (from 31 December 2019) of US$370m has declined by -17% 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 11%, indicating the rate at which AOS is growing has slowed down. What could be happening here? Well, let’s take a look at what’s transpiring with margins and whether the whole industry is facing the same headwind.
In terms of returns from investment, A. O. Smith has invested its equity funds well leading to a 22% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 12% exceeds the US Building industry of 8.1%, indicating A. O. Smith has used its assets more efficiently. However, its return on capital (ROC), which also accounts for A. O. Smith’s debt level, has declined over the past 3 years from 22% to 20%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 16% to 16% over the past 5 years.
What does this mean?
A. O. Smith’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 volatile earnings, can have many factors influencing its business. I suggest you continue to research A. O. Smith to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AOS’s future growth? Take a look at our free research report of analyst consensus for AOS’s outlook.
- Financial Health: Are AOS’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 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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