After looking at American Railcar Industries Inc’s (NASDAQ:ARII) latest earnings announcement (30 June 2018), 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.
Could ARII beat the long-term trend and outperform its industry?ARII’s trailing twelve-month earnings (from 30 June 2018) of US$142.89m has more than doubled from US$72.66m in the prior year. Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 15.58%, indicating the rate at which ARII is growing has accelerated. What’s the driver of this growth? Let’s see if it is solely because of industry tailwinds, or if American Railcar Industries has seen some company-specific growth.
Over the last few years, American Railcar Industries grew bottom-line, while its top-line declined, by efficiently controlling its costs. This resulted in to a margin expansion and profitability over time. Eyeballing growth from a sector-level, the US machinery industry has been growing its average earnings by double-digit 25.18% in the prior twelve months, and a less exciting 5.46% over the past five years. This growth is a median of profitable companies of 25 Machinery companies in US including COSCO Shipping International (Singapore), TMSR Holding and Omni-Lite Industries Canada. This shows that any uplift the industry is benefiting from, American Railcar Industries is able to amplify this to its advantage.In terms of returns from investment, American Railcar Industries has invested its equity funds well leading to a 21.32% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 10.98% exceeds the US Machinery industry of 6.01%, indicating American Railcar Industries has used its assets more efficiently. However, its return on capital (ROC), which also accounts for American Railcar Industries’s debt level, has declined over the past 3 years from 14.40% to 4.33%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 49.67% to 79.51% over the past 5 years.
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? You should continue to research American Railcar Industries to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ARII’s future growth? Take a look at our free research report of analyst consensus for ARII’s outlook.
- Financial Health: Is ARII’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 2018. This may not be consistent with full year annual report figures.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.