After looking at Argan Inc’s (NYSE:AGX) latest earnings update (31 July 2017), 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. See our latest analysis for AGX
Could AGX beat the long-term trend and outperform its industry?
For the purpose of this commentary, I like to use the ‘latest twelve-month’ data, 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 the latest information. Argan’s most recent bottom-line is $86.2M, which, relative to the previous year’s level, has moved up by a substantial 74.33%. Given that these values may be fairly short-term, I have created an annualized five-year value for AGX’s net income, which stands at $33.5M. This means that, on average, Argan has been able to gradually grow its bottom line over the last couple of years as well.
What’s the driver of this growth? Let’s see if it is only because of an industry uplift, or if Argan has seen some company-specific growth. In the last few years, Argan expanded its bottom line faster than revenue by successfully controlling its costs. This brought about a margin expansion and profitability over time. Scanning growth from a sector-level, the US construction and engineering industry has been growing its average earnings by double-digit 16.12% in the past twelve months, and a more subdued 4.29% over the past five years. This means whatever uplift the industry is benefiting from, Argan is capable of leveraging this to its advantage.
What does this mean?
Though Argan’s past data is helpful, it is only one aspect of my investment thesis. While Argan has a good historical track record with positive growth and profitability, there’s no certainty that this will extrapolate into the future. I recommend you continue to research Argan to get a better picture of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for AGX’s future growth? Take a look at our free research report of analyst consensus for AGX’s outlook.