Does K-Bro Linen Inc.’s (TSE:KBL) Past Performance Indicate A Stronger Future?

After looking at K-Bro Linen Inc.’s (TSE:KBL) latest earnings announcement (30 June 2019), 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.

See our latest analysis for K-Bro Linen

Did KBL’s recent earnings growth beat the long-term trend and the industry?

KBL’s trailing twelve-month earnings (from 30 June 2019) of CA$7.0m has jumped 30% compared to the previous year.

Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of -17%, indicating the rate at which KBL is growing has accelerated. How has it been able to do this? Let’s take a look at if it is merely because of an industry uplift, or if K-Bro Linen has seen some company-specific growth.

TSX:KBL Income Statement, August 12th 2019
TSX:KBL Income Statement, August 12th 2019

In terms of returns from investment, K-Bro Linen has fallen short of achieving a 20% return on equity (ROE), recording 3.6% instead. Furthermore, its return on assets (ROA) of 3.1% is below the CA Commercial Services industry of 6.1%, indicating K-Bro Linen’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for K-Bro Linen’s debt level, has declined over the past 3 years from 13% to 3.8%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 31% to 39% over the past 5 years.

What does this mean?

While past data is useful, it doesn’t tell the whole story. Recent positive growth isn’t always indicative of a continued optimistic outlook. There may be variables that are affecting the industry as a whole, hence the high industry growth rate over the same time period. I suggest you continue to research K-Bro Linen to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for KBL’s future growth? Take a look at our free research report of analyst consensus for KBL’s outlook.
  2. Financial Health: Are KBL’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 30 June 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.