After looking at The Toro Company's (NYSE:TTC) latest earnings update (31 October 2019), I found it helpful to revisit the company's performance in the past couple of years and compare this against the latest numbers. 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 an important aspect. In this article I briefly touch on my key findings.
Did TTC perform better than its track record and industry?
TTC's trailing twelve-month earnings (from 31 October 2019) of US$274m has increased by 0.8% compared to the previous year.
However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 9.9%, indicating the rate at which TTC is growing has slowed down. To understand what's happening, let's look at what's occurring with margins and if the rest of the industry is experiencing the hit as well.
In terms of returns from investment, Toro has invested its equity funds well leading to a 32% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 13% exceeds the US Machinery industry of 7.2%, indicating Toro has used its assets more efficiently. However, its return on capital (ROC), which also accounts for Toro’s debt level, has declined over the past 3 years from 36% to 25%.
What does this mean?
Toro's track record can be a valuable insight into its earnings performance, but it certainly 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? I suggest you continue to research Toro to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TTC’s future growth? Take a look at our free research report of analyst consensus for TTC’s outlook.
- Financial Health: Are TTC’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 October 2019. This may not be consistent with full year annual report figures.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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