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After looking at Watsco Inc’s (NYSE:WSO) latest earnings announcement (31 March 2018), I found it useful to revisit the company’s performance in the past couple of years and assess this against the most recent figures. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is a crucial aspect. Below is a brief commentary on my key takeaways. Check out our latest analysis for Watsco
Commentary On WSO’s Past Performance
To account for any quarterly or half-yearly updates, I use data from the most recent 12 months, which annualizes the most recent half-year data, or in some cases, the latest annual report is already the most recent financial year data. This technique allows me to examine different companies on a similar basis, using new information. For Watsco, its latest trailing-twelve-month earnings is US$198.83M, which, against the prior year’s figure, has moved up by 18.39%. Since these values may be somewhat nearsighted, I have determined an annualized five-year value for WSO’s earnings, which stands at US$132.94M This suggests that, on average, Watsco has been able to increasingly raise its profits over the last few years as well.
What’s the driver of this growth? Well, let’s take a look at whether it is merely a result of an industry uplift, or if Watsco has experienced some company-specific growth. Over the last couple of years, Watsco increased its bottom line faster than revenue by efficiently controlling its costs. This resulted in a margin expansion and profitability over time. Scanning growth from a sector-level, the US trade distributors industry has been growing its average earnings by double-digit 27.23% in the previous year, and a more muted 5.43% over the past half a decade. This means any tailwind the industry is benefiting from, Watsco has not been able to realize the gains unlike its average peer.
What does this mean?
Watsco’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 Watsco gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. You should continue to research Watsco to get a more holistic view of the stock by looking at:
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Future Outlook: What are well-informed industry analysts predicting for WSO’s future growth? Take a look at our free research report of analyst consensus for WSO’s outlook.
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Financial Health: Is WSO’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.
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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 March 2018. This may not be consistent with full year annual report figures.
To help readers see pass 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.