Today I will take a look at Adelaide Brighton Limited's (ASX:ABC) most recent earnings update (31 December 2018) and compare these latest figures against its performance over the past few years, as well as how the rest of the basic materials industry performed. As an investor, I find it beneficial to assess ABC’s trend over the short-to-medium term in order to gauge whether or not the company is able to meet its goals, and ultimately sustainably grow over time.
Did ABC perform better than its track record and industry?
ABC's trailing twelve-month earnings (from 31 December 2018) of AU$185m has increased by 1.4% compared to the previous year.
However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 3.4%, indicating the rate at which ABC is growing has slowed down. Why could this be happening? Well, let's look at what's transpiring with margins and whether the rest of the industry is experiencing the hit as well.
In terms of returns from investment, Adelaide Brighton has fallen short of achieving a 20% return on equity (ROE), recording 15% instead. However, its return on assets (ROA) of 9.6% exceeds the AU Basic Materials industry of 7.0%, indicating Adelaide Brighton has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Adelaide Brighton’s debt level, has declined over the past 3 years from 14% to 11%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 25% to 27% over the past 5 years.
What does this mean?
Though Adelaide Brighton's past data is helpful, it is only one aspect of my investment thesis. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? I recommend you continue to research Adelaide Brighton to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ABC’s future growth? Take a look at our free research report of analyst consensus for ABC’s outlook.
- Financial Health: Are ABC’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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