When Griffon Corporation’s (NYSE:GFF) announced its latest earnings (31 March 2018), I wanted to understand how these figures stacked up against its past performance. The two benchmarks I used were Griffon’s average earnings over the past couple of years, and its industry performance. These are useful yardsticks to help me gauge whether or not GFF actually performed well. Below is a quick commentary on how I see GFF has performed. View out our latest analysis for Griffon
Could GFF beat the long-term trend and outperform its industry?GFF’s trailing twelve-month earnings (from 31 March 2018) of US$33.57m has more than doubled from US$19.78m in the prior year. Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 23.16%, indicating the rate at which GFF is growing has accelerated. What’s the driver of this growth? Let’s see whether it is merely due to industry tailwinds, or if Griffon has experienced some company-specific growth.
In the last couple of years, Griffon increased bottom-line, while its top-line declined, by successfully managing its costs. This has led to to a margin expansion and profitability over time. Viewing growth from a sector-level, the US building industry has been growing its average earnings by double-digit 15.81% over the prior year, and 15.27% over the past five. This growth is a median of profitable companies of 25 Building companies in US including Caesarstone, Burnham Holdings and Burnham Holdings. This suggests that any tailwind the industry is gaining from, Griffon is capable of leveraging this to its advantage.In terms of returns from investment, Griffon has not invested its equity funds well, leading to a 7.08% return on equity (ROE), below the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 4.41% is below the US Building industry of 7.43%, indicating Griffon’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Griffon’s debt level, has declined over the past 3 years from 3.20% to 1.32%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 109.49% to 230.24% over the past 5 years.
What does this mean?
Griffon’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Companies that have performed well in the past, such as Griffon gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. I suggest you continue to research Griffon to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for GFF’s future growth? Take a look at our free research report of analyst consensus for GFF’s outlook.
- Financial Health: Is GFF’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.