When W.W. Grainger, Inc. (NYSE:GWW) released its most recent earnings update (31 December 2018), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Being able to interpret how well W.W. Grainger has done so far requires weighing its performance against a benchmark, rather than looking at a standalone number at a point in time. In this article, I’ve summarized the key takeaways on how I see GWW has performed.
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Could GWW beat the long-term trend and outperform its industry?
GWW’s trailing twelve-month earnings (from 31 December 2018) of US$782m has jumped 35% compared to the previous year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of -4.9%, indicating the rate at which GWW is growing has accelerated. What’s the driver of this growth? Let’s see if it is solely attributable to an industry uplift, or if W.W. Grainger has seen some company-specific growth.
In terms of returns from investment, W.W. Grainger has invested its equity funds well leading to a 39% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 15% exceeds the US Trade Distributors industry of 6.0%, indicating W.W. Grainger has used its assets more efficiently. However, its return on capital (ROC), which also accounts for W.W. Grainger’s debt level, has declined over the past 3 years from 33% to 31%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 16% to 106% 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 W.W. Grainger to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for GWW’s future growth? Take a look at our free research report of analyst consensus for GWW’s outlook.
- Financial Health: Are GWW’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.
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 email@example.com.