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Does Linamar Corporation’s (TSE:LNR) Recent Track Record Look Strong?

For long-term investors, assessing earnings trend over time and against industry benchmarks is more beneficial than examining a single earnings announcement at a point in time. Investors may find my commentary, albeit very high-level and brief, on Linamar Corporation (TSE:LNR) useful as an attempt to give more color around how Linamar is currently performing. View out our latest analysis for Linamar

Did LNR’s recent earnings growth beat the long-term trend and the industry?

LNR’s trailing twelve-month earnings (from 31 March 2018) of CA$560.89m has increased by 3.72% 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 25.09%, indicating the rate at which LNR is growing has slowed down. What could be happening here? Well, let’s take a look at what’s transpiring with margins and if the entire industry is feeling the heat.

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Over the past few years, revenue growth has failed to keep up which suggests that Linamar’s bottom line has been propelled by unmaintainable cost-reductions. Looking at growth from a sector-level, the Canadian auto components industry has been growing its average earnings by double-digit 11.87% in the previous twelve months, and 11.36% over the past half a decade. This shows that any tailwind the industry is benefiting from, Linamar has not been able to gain as much as its average peer.

TSX:LNR Income Statement June 21st 18
TSX:LNR Income Statement June 21st 18

In terms of returns from investment, Linamar has not invested its equity funds well, leading to a 16.53% return on equity (ROE), below the sensible minimum of 20%. However, its return on assets (ROA) of 7.14% exceeds the CA Auto Components industry of 6.60%, indicating Linamar has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Linamar’s debt level, has declined over the past 3 years from 18.47% to 11.30%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 67.67% to 77.08% over the past 5 years.

What does this mean?

Linamar’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 Linamar to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for LNR’s future growth? Take a look at our free research report of analyst consensus for LNR’s outlook.

  2. Financial Health: Is LNR’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.

  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 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.