Assessing General Dynamics Corporation's (NYSE:GD) performance as a company requires looking at more than just a years' earnings data. Below, I will run you through a simple sense check to build perspective on how General Dynamics is doing by comparing its most recent earnings with its historical trend, in addition to the performance of its aerospace & defense industry peers.
Could GD beat the long-term trend and outperform its industry?
GD's trailing twelve-month earnings (from 31 December 2019) of US$3.5b has increased by 3.8% 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 4.1%, indicating the rate at which GD is growing has slowed down. What could be happening here? Well, let’s take a look at what’s going on with margins and whether the entire industry is facing the same headwind.
In terms of returns from investment, General Dynamics has invested its equity funds well leading to a 26% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 8.1% exceeds the US Aerospace & Defense industry of 6.1%, indicating General Dynamics has used its assets more efficiently. However, its return on capital (ROC), which also accounts for General Dynamics’s debt level, has declined over the past 3 years from 19% to 15%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 33% to 88% over the past 5 years.
What does this mean?
Though General Dynamics'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? I suggest you continue to research General Dynamics to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for GD’s future growth? Take a look at our free research report of analyst consensus for GD’s outlook.
Financial Health: Are GD’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 December 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.
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. Thank you for reading.