After reading Ebro Foods, S.A.'s (BME:EBRO) most recent earnings announcement (30 September 2019), I found it useful to look back at how the company has performed in the past 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 a crucial aspect. Below is a brief commentary on my key takeaways.
Despite a decline, did EBRO underperform the long-term trend and the industry?
EBRO's trailing twelve-month earnings (from 30 September 2019) of €157m has declined by -19% compared to the previous year.
Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 3.0%, indicating the rate at which EBRO is growing has slowed down. What could be happening here? Well, let’s take a look at what’s occurring with margins and whether the whole industry is experiencing the hit as well.
In terms of returns from investment, Ebro Foods has fallen short of achieving a 20% return on equity (ROE), recording 6.9% instead. Furthermore, its return on assets (ROA) of 4.1% is below the ES Food industry of 4.8%, indicating Ebro Foods's are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Ebro Foods’s debt level, has declined over the past 3 years from 9.8% to 7.5%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 25% to 35% over the past 5 years.
What does this mean?
Though Ebro Foods's past data is helpful, it is only one aspect of my investment thesis. In some cases, companies that endure a drawn out period of reduction in earnings are undergoing some sort of reinvestment phase Although, if the whole industry is struggling to grow over time, it may be a sign of a structural change, which makes Ebro Foods and its peers a riskier investment. I suggest you continue to research Ebro Foods to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for EBRO’s future growth? Take a look at our free research report of analyst consensus for EBRO’s outlook.
- Financial Health: Are EBRO’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 30 September 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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