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Argo Group International Holdings Ltd (NYSE:ARGO): Does The Earnings Decline Make It An Underperformer?

Gabriel Boyd

Assessing Argo Group International Holdings Ltd’s (NYSE:ARGO) performance as a company requires looking at more than just a years’ earnings data. Below, I will run you through a simple sense check to build perspective on how Argo Group International Holdings is doing by comparing its most recent earnings with its historical trend, in addition to the performance of its insurance industry peers. Check out our latest analysis for Argo Group International Holdings

Was ARGO’s recent earnings decline indicative of a tough track record?

ARGO’s trailing twelve-month earnings (from 31 March 2018) of US$38.40m has more than halved from US$146.70m in the prior year. Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 18.59%, indicating the rate at which ARGO is growing has slowed down. Why could this be happening? Well, let’s look at what’s transpiring with margins and whether the entire industry is feeling the heat.

Over the last couple of years, revenue growth has fallen behind which implies that Argo Group International Holdings’s bottom line has been driven by unmaintainable cost-reductions. Scanning growth from a sector-level, the US insurance industry has been growing, albeit, at a muted single-digit rate of 3.77% over the previous twelve months, and 8.26% over the last five years. This means any recent headwind the industry is enduring, it’s hitting Argo Group International Holdings harder than its peers.

NYSE:ARGO Income Statement June 25th 18

In terms of returns from investment, Argo Group International Holdings has not invested its equity funds well, leading to a 2.15% return on equity (ROE), below the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 0.74% is below the US Insurance industry of 1.69%, indicating Argo Group International Holdings’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Argo Group International Holdings’s debt level, has declined over the past 3 years from 8.48% to 0.91%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 25.97% to 32.60% over the past 5 years.

What does this mean?

While past data is useful, it doesn’t tell the whole story. Generally companies that endure an extended period of diminishing earnings are going through some sort of reinvestment phase Though if the entire industry is struggling to grow over time, it may be a sign of a structural shift, which makes Argo Group International Holdings and its peers a riskier investment. You should continue to research Argo Group International Holdings to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for ARGO’s future growth? Take a look at our free research report of analyst consensus for ARGO’s outlook.
  2. Financial Health: Is ARGO’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 2018. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.