In this article, I will take a look at Waters Corporation’s (NYSE:WAT) most recent earnings update (30 June 2018) and compare these latest figures against its performance over the past few years, along with how the rest of WAT’s industry performed. As a long-term investor, I find it useful to analyze the company’s trend over time in order to estimate whether or not the company is able to meet its goals, and eventually grow sustainably over time.
Despite a decline, did WAT underperform the long-term trend and the industry?WAT’s trailing twelve-month earnings (from 30 June 2018) of US$50.56m has more than halved from US$521.50m in the prior year. Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of -5.70%, indicating the rate at which WAT is growing has slowed down. Why could this be happening? Well, let’s look at what’s transpiring with margins and whether the entire industry is experiencing the hit as well.
Revenue growth over the past couple of years, has been positive, yet earnings growth has been deteriorating. This suggest that Waters has been growing expenses, which is harming margins and earnings, and is not a sustainable practice. Inspecting growth from a sector-level, the US life sciences industry has been growing its average earnings by double-digit 11.62% over the previous twelve months, and 19.67% over the past half a decade. This growth is a median of profitable companies of 24 Life Sciences companies in US including Agilent Technologies, Bruker and Evotec. This shows that whatever tailwind the industry is enjoying, Waters has not been able to gain as much as its average peer.In terms of returns from investment, Waters has not invested its equity funds well, leading to a 2.56% return on equity (ROE), below the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 1.62% is below the US Life Sciences industry of 6.28%, indicating Waters’s are utilized less efficiently. However, its return on capital (ROC), which also accounts for Waters’s debt level, has increased over the past 3 years from 15.79% to 18.90%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 83.33% to 58.15% over the past 5 years.
What does this mean?
Though Waters’s past data is helpful, it is only one aspect of my investment thesis. Typically companies that experience an extended period of decline in earnings are undergoing some sort of reinvestment phase in order to keep up with the recent industry expansion and disruption. I suggest you continue to research Waters to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for WAT’s future growth? Take a look at our free research report of analyst consensus for WAT’s outlook.
- Financial Health: Are WAT’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 email@example.com.