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Was Ashtead Group plc's (LON:AHT) Earnings Decline Part Of A Broader Industry Downturn?

Simply Wall St

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When Ashtead Group plc (LON:AHT) announced its most recent earnings (30 April 2019), I did two things: looked at its past earnings track record, then look at what is happening in the industry. Understanding how Ashtead Group 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 AHT has performed.

Check out our latest analysis for Ashtead Group

How Well Did AHT Perform?

AHT's trailing twelve-month earnings (from 30 April 2019) of UK£797m has declined by -18% 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 30%, indicating the rate at which AHT is growing has slowed down. What could be happening here? Let's examine what's transpiring with margins and if the entire industry is facing the same headwind.

LSE:AHT Income Statement, July 17th 2019

In terms of returns from investment, Ashtead Group has invested its equity funds well leading to a 28% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 11% exceeds the GB Trade Distributors industry of 8.0%, indicating Ashtead Group has used its assets more efficiently. However, its return on capital (ROC), which also accounts for Ashtead Group’s debt level, has declined over the past 3 years from 17% to 16%.

What does this mean?

While past data is useful, it doesn’t tell the whole story. Companies that are profitable, but have volatile earnings, can have many factors influencing its business. I recommend you continue to research Ashtead Group to get a more holistic view of the stock by looking at:

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