Does Westlake Chemical Partners LP’s (NYSE:WLKP) Past Performance Indicate A Stronger Future?

Examining how Westlake Chemical Partners LP (NYSE:WLKP) is performing as a company requires looking at more than just a years’ earnings. Below, I will run you through a simple sense check to build perspective on how Westlake Chemical Partners is doing by comparing its most recent earnings with its historical trend, in addition to the performance of its chemicals industry peers.

Check out our latest analysis for Westlake Chemical Partners

How Well Did WLKP Perform?

WLKP’s trailing twelve-month earnings (from 30 June 2018) of US$52.1m has jumped 35.6% compared to the previous year. Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of -38.6%, indicating the rate at which WLKP is growing has accelerated. What’s the driver of this growth? Let’s see if it is solely due to industry tailwinds, or if Westlake Chemical Partners has seen some company-specific growth.

Though both top-line and bottom-line growth rates in the last few years were on average negative, earnings were more so. While this has caused a margin contraction, it has softened Westlake Chemical Partners’s earnings contraction. Eyeballing growth from a sector-level, the US chemicals industry has been growing its average earnings by double-digit 24.8% in the prior twelve months, and a more muted 5.5% over the past five. This growth is a median of profitable companies of 25 Chemicals companies in US including W. R. Grace, ADM Tronics Unlimited and Flexible Solutions International. This means any uplift the industry is benefiting from, Westlake Chemical Partners is capable of leveraging this to its advantage.

NYSE:WLKP Income Statement Export August 29th 18
NYSE:WLKP Income Statement Export August 29th 18
In terms of returns from investment, Westlake Chemical Partners has invested its equity funds well leading to a 35.8% return on equity (ROE), above the sensible minimum of 20%. However, its return on assets (ROA) of 4.9% is below the US Chemicals industry of 7.6%, indicating Westlake Chemical Partners’s are utilized less efficiently. Furthermore, its return on capital (ROC), which also accounts for Westlake Chemical Partners’s debt level, has declined over the past 3 years from 38.3% to 24.0%.

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 could be variables that are impacting the industry as a whole, thus the high industry growth rate over the same time period. You should continue to research Westlake Chemical Partners to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for WLKP’s future growth? Take a look at our free research report of analyst consensus for WLKP’s outlook.
  2. Financial Health: Are WLKP’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 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 editorial-team@simplywallst.com.