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.
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