Measuring Western Forest Products Inc.’s (TSE:WEF) track record of past performance is an insightful exercise for investors. It enables us to reflect on whether the company has met or exceed expectations, which is a powerful signal for future performance. Below, I will assess WEF’s recent performance announced on 31 December 2018 and compare these figures to its historical trend and industry movements.
Despite a decline, did WEF underperform the long-term trend and the industry?
WEF’s trailing twelve-month earnings (from 31 December 2018) of CA$69m has declined by -7.0% 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 -6.0%, indicating the rate at which WEF is growing has slowed down. What could be happening here? Well, let’s take a look at what’s going on with margins and if the rest of the industry is experiencing the hit as well.
In terms of returns from investment, Western Forest Products has fallen short of achieving a 20% return on equity (ROE), recording 12% instead. Furthermore, its return on assets (ROA) of 8.3% is below the CA Forestry industry of 8.8%, indicating Western Forest Products’s are utilized less efficiently. However, its return on capital (ROC), which also accounts for Western Forest Products’s debt level, has increased over the past 3 years from 12% to 13%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 23% to 1.0% over the past 5 years.
What does this mean?
Though Western Forest Products’s past data is helpful, it is only one aspect of my investment thesis. In some cases, companies that face a drawn out period of diminishing earnings are going through some sort of reinvestment phase in order to keep up with the latest industry disruption and growth. I suggest you continue to research Western Forest Products to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for WEF’s future growth? Take a look at our free research report of analyst consensus for WEF’s outlook.
- Financial Health: Are WEF’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 2018. This may not be consistent with full year annual report figures.
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