Yahoo Finance Should McMillan Shakespeare Limited’s (ASX:MMS) Recent Earnings Worry You?
Assessing McMillan Shakespeare Limited’s (ASX:MMS) past track record of performance is a useful exercise for investors. It allows us to understand whether the company has met or exceed expectations, which is a great indicator for future performance. Below, I assess MMS’s latest performance announced on 31 December 2017 and evaluate these figures to its historical trend and industry movements.
Check out our latest analysis for McMillan Shakespeare
How Did MMS’s Recent Performance Stack Up Against Its Past?
MMS’s trailing twelve-month earnings (from 31 December 2017) of AU$62.42m has declined by -25.65% 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 7.03%, indicating the rate at which MMS is growing has slowed down. Why is this? Let’s examine what’s occurring with margins and if the whole industry is experiencing the hit as well.
Revenue growth over the last couple of years, has been positive, however, earnings growth has fallen behind meaning McMillan Shakespeare has been ramping up its expenses by a lot more. This harms margins and earnings, and is not a sustainable practice. Scanning growth from a sector-level, the Australian professional services industry has been enduring some headwinds in the past twelve months, leading to an average earnings drop of -18.00%. This is a significant change, given that the industry has been delivering a positive rate of 3.08%, on average, over the previous five years. This growth is a median of profitable companies of 10 Professional Services companies in AU including SEEK, Veris and Ambition Group. This means any near-term headwind the industry is enduring, it’s hitting McMillan Shakespeare harder than its peers.
In terms of returns from investment, McMillan Shakespeare has fallen short of achieving a 20% return on equity (ROE), recording 16.30% instead. However, its return on assets (ROA) of 8.58% exceeds the AU Professional Services industry of 6.80%, indicating McMillan Shakespeare has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for McMillan Shakespeare’s debt level, has declined over the past 3 years from 19.37% to 16.74%.
What does this mean?
McMillan Shakespeare’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Usually companies that experience a prolonged period of decline in earnings are going through some sort of reinvestment phase Although, if the entire industry is struggling to grow over time, it may be a sign of a structural shift, which makes McMillan Shakespeare and its peers a higher risk investment. You should continue to research McMillan Shakespeare to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for MMS’s future growth? Take a look at our free research report of analyst consensus for MMS’s outlook.
Financial Health: Are MMS’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 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.
