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Should You Be Concerned About Super Retail Group Limited’s (ASX:SUL) Earnings Growth?

Investors with a long-term horizong may find it valuable to assess Super Retail Group Limited’s (ASX:SUL) earnings trend over time and against its industry benchmark as opposed to simply looking at a sincle earnings announcement at one point in time. Below is my commentary, albiet very simple and high-level, on how Super Retail Group is currently performing.

View our latest analysis for Super Retail Group

Did SUL beat its long-term earnings growth trend and its industry?

SUL’s trailing twelve-month earnings (from 30 December 2017) of AU$99.60m has increased by 8.10% compared to the previous year. Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 1.28%, indicating the rate at which SUL is growing has accelerated. How has it been able to do this? Well, let’s take a look at if it is only a result of industry tailwinds, or if Super Retail Group has experienced some company-specific growth.

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The hike in earnings seems to be propelled by a substantial top-line increase beating its growth rate of expenses. Though this has caused a margin contraction, it has made Super Retail Group more profitable. Inspecting growth from a sector-level, the Australian specialty retail industry has been growing, albeit, at a unexciting single-digit rate of 8.34% over the past twelve months, and a substantial 16.19% over the past five years. This growth is a median of profitable companies of 24 Specialty Retail companies in AU including PAS Group, Vita Group and Automotive Holdings Group. This shows that any tailwind the industry is benefiting from, Super Retail Group has not been able to gain as much as its average peer.

ASX:SUL Income Statement Export August 22nd 18
ASX:SUL Income Statement Export August 22nd 18

In terms of returns from investment, Super Retail Group has fallen short of achieving a 20% return on equity (ROE), recording 12.65% instead. However, its return on assets (ROA) of 7.10% exceeds the AU Specialty Retail industry of 6.71%, indicating Super Retail Group has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Super Retail Group’s debt level, has increased over the past 3 years from 11.89% to 15.73%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 48.19% to 29.56% over the past 5 years.

What does this mean?

While past data is useful, it doesn’t tell the whole story. While Super Retail Group has a good historical track record with positive growth and profitability, there’s no certainty that this will extrapolate into the future. You should continue to research Super Retail Group to get a better picture of the stock by looking at:

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

  2. Financial Health: Are SUL’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 30 December 2017. This may not be consistent with full year annual report figures.

To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.