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adidas AG's (FRA:ADS) Earnings Grew 26%, Did It Beat Long-Term Trend?

Simply Wall St

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After looking at adidas AG's (FRA:ADS) latest earnings announcement (31 March 2019), I found it useful to revisit the company's performance in the past couple of years and assess this against the most recent figures. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is a crucial aspect. Below is a brief commentary on my key takeaways.

View our latest analysis for adidas

Were ADS's earnings stronger than its past performances and the industry?

ADS's trailing twelve-month earnings (from 31 March 2019) of €1.8b has jumped 26% compared to the previous year.

Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 25%, indicating the rate at which ADS is growing has accelerated. What's the driver of this growth? Well, let’s take a look at if it is merely because of industry tailwinds, or if adidas has experienced some company-specific growth.

DB:ADS Income Statement, July 18th 2019

In terms of returns from investment, adidas has invested its equity funds well leading to a 26% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 9.6% exceeds the DE Luxury industry of 5.3%, indicating adidas has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for adidas’s debt level, has increased over the past 3 years from 16% to 21%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 26% to 24% over the past 5 years.

What does this mean?

Though adidas's past data is helpful, it is only one aspect of my investment thesis. Companies that have performed well in the past, such as adidas gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. I suggest you continue to research adidas to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for ADS’s future growth? Take a look at our free research report of analyst consensus for ADS’s outlook.
  2. Financial Health: Are ADS’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 31 March 2019. This may not be consistent with full year annual report figures.

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.

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. Thank you for reading.