Increase in profitability and industry-beating performance can be essential considerations in a stock for some investors. In this article, I will take a look at K+S Aktiengesellschaft’s (FRA:SDF) track record on a high level, to give you some insight into how the company has been performing against its historical trend and its industry peers.

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Commentary On SDF’s Past Performance

SDF’s trailing twelve-month earnings (from 31 March 2018) of €158.80m has more than doubled from €174.10m in the prior year. Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of -17.62%, indicating the rate at which SDF is growing has accelerated. What’s the driver of this growth? Let’s see whether it is only owing to industry tailwinds, or if K+S has experienced some company-specific growth.

Although both top-line and bottom-line growth rates in the last couple of years were on average negative, earnings were more so. While this resulted in a margin contraction, it has moderated K+S’s earnings contraction. Scanning growth from a sector-level, the DE chemicals industry has been growing its average earnings by double-digit 16.77% over the prior twelve months, and a less exciting 8.12% over the last five years. This growth is a median of profitable companies of 25 Chemicals companies in DE including W. R. Grace, IBU-tec advanced materials and IBU-tec advanced materials. This means whatever tailwind the industry is deriving benefit from, K+S is capable of leveraging this to its advantage.

In terms of returns from investment, K+S has not invested its equity funds well, leading to a 3.97% return on equity (ROE), below the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 2.20% is below the DE Chemicals industry of 6.86%, indicating K+S’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for K+S’s debt level, has declined over the past 3 years from 7.41% to 3.06%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 34.79% to 78.63% over the past 5 years.

What does this mean?

Though K+S’s past data is helpful, it is only one aspect of my investment thesis. Recent positive growth isn’t always indicative of a continued optimistic outlook. There could be variables that are impacting the entire industry hence the high industry growth rate over the same period of time. You should continue to research K+S to get a better picture of the stock by looking at: