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With A -6.2% Earnings Drop, Did Magic Software Enterprises Ltd. (NASDAQ:MGIC) Really Underperform?

Simply Wall St

Today I will examine Magic Software Enterprises Ltd.'s (NasdaqGS:MGIC) latest earnings update (30 September 2019) and compare these figures against its performance over the past couple of years, in addition to how the rest of MGIC's industry performed. As a long-term investor, I find it useful to analyze the company's trend over time in order to estimate whether or not the company is able to meet its goals, and eventually grow sustainably over time.

Check out our latest analysis for Magic Software Enterprises

Was MGIC weak performance lately part of a long-term decline?

MGIC's trailing twelve-month earnings (from 30 September 2019) of US$18m has declined by -6.2% 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 3.3%, indicating the rate at which MGIC is growing has slowed down. Why could this be happening? Well, let's look at what's transpiring with margins and whether the whole industry is experiencing the hit as well.

NasdaqGS:MGIC Income Statement, December 6th 2019

In terms of returns from investment, Magic Software Enterprises has fallen short of achieving a 20% return on equity (ROE), recording 9.0% instead. Furthermore, its return on assets (ROA) of 4.6% is below the US Software industry of 6.7%, indicating Magic Software Enterprises's are utilized less efficiently. However, its return on capital (ROC), which also accounts for Magic Software Enterprises’s debt level, has increased over the past 3 years from 8.9% to 9.8%.

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. You should continue to research Magic Software Enterprises to get a better picture of the stock by looking at:

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