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With A -12% Earnings Drop, Did The Colonial Motor Company Limited (NZSE:CMO) Really Underperform?

Simply Wall St

Examining The Colonial Motor Company Limited's (NZSE:CMO) past track record of performance is an insightful exercise for investors. It allows us to reflect on whether or not the company has met or exceed expectations, which is a great indicator for future performance. Today I will assess CMO's latest performance announced on 30 June 2019 and compare these figures to its longer term trend and industry movements.

View our latest analysis for Colonial Motor

Despite a decline, did CMO underperform the long-term trend and the industry?

CMO's trailing twelve-month earnings (from 30 June 2019) of NZ$22m has declined by -12% 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 6.0%, indicating the rate at which CMO is growing has slowed down. What could be happening here? Well, let's look at what's going on with margins and whether the rest of the industry is feeling the heat.

NZSE:CMO Income Statement, February 1st 2020

In terms of returns from investment, Colonial Motor has fallen short of achieving a 20% return on equity (ROE), recording 11% instead. Furthermore, its return on assets (ROA) of 6.9% is below the NZ Specialty Retail industry of 9.0%, indicating Colonial Motor's are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Colonial Motor’s debt level, has declined over the past 3 years from 19% to 18%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 39% to 58% over the past 5 years.

What does this mean?

While past data is useful, it doesn’t tell the whole story. Companies that are profitable, but have capricious earnings, can have many factors impacting its business. I recommend you continue to research Colonial Motor to get a better picture of the stock by looking at:

  1. Financial Health: Are CMO’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.
  2. Valuation: What is CMO worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether CMO is currently mispriced by the market.
  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 June 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 editorial-team@simplywallst.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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.