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Does Stepan Company's (NYSE:SCL) Past Performance Indicate A Stronger Future?

Simply Wall St

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When Stepan Company ( NYSE:SCL ) released its most recent earnings update (31 December 2018), I wanted to understand how these figures stacked up against its past performance. The two benchmarks I used were Stepan's average earnings over the past couple of years, and its industry performance. These are useful yardsticks to help me gauge whether or not SCL actually performed well. Below is a quick commentary on how I see SCL has performed.

View our latest analysis for Stepan

Were SCL's earnings stronger than its past performances and the industry?

SCL's trailing twelve-month earnings (from 31 December 2018) of US$113m has jumped 23% compared to the previous year.

Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 10%, indicating the rate at which SCL is growing has accelerated. What's enabled this growth? Let's see whether it is only due to industry tailwinds, or if Stepan has seen some company-specific growth.

NYSE:SCL Income Statement, April 2nd 2019

In terms of returns from investment, Stepan has fallen short of achieving a 20% return on equity (ROE), recording 14% instead. However, its return on assets (ROA) of 8.3% exceeds the US Chemicals industry of 7.7%, indicating Stepan has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Stepan’s debt level, has increased over the past 3 years from 12% to 13%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 49% to 35% over the past 5 years.

What does this mean?

Though Stepan's past data is helpful, it is only one aspect of my investment thesis. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? You should continue to research Stepan to get a better picture of the stock by looking at:

  1. Financial Health : Are SCL’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 .
  2. Valuation : What is SCL worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether SCL is currently mispriced by the market.
  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 31 December 2018. This may not be consistent with full year annual report figures.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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. Thank you for reading.