When Global Payments Inc. (NYSE:GPN) released its most recent earnings update (31 December 2018), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Understanding how Global Payments performed requires a benchmark rather than trying to assess a standalone number at one point in time. Below is a quick commentary on how I see GPN has performed.
Was GPN's weak performance lately a part of a long-term decline?
GPN's trailing twelve-month earnings (from 31 December 2018) of US$452m has declined by -3.5% 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 17%, indicating the rate at which GPN is growing has slowed down. What could be happening here? Well, let's look at what's transpiring with margins and if the rest of the industry is feeling the heat.
In terms of returns from investment, Global Payments has fallen short of achieving a 20% return on equity (ROE), recording 12% instead. Furthermore, its return on assets (ROA) of 4.8% is below the US IT industry of 5.8%, indicating Global Payments's are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Global Payments’s debt level, has declined over the past 3 years from 16% to 8.0%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 118% to 139% over the past 5 years.
What does this mean?
Global Payments's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. Companies that are profitable, but have capricious earnings, can have many factors affecting its business. You should continue to research Global Payments to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for GPN’s future growth? Take a look at our free research report of analyst consensus for GPN’s outlook.
- Financial Health: Are GPN’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 2018. This may not be consistent with full year annual report figures.
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