Understanding Assured Guaranty Ltd.'s (NYSE:AGO) performance as a company requires examining more than earnings from one point in time. Today I will take you through a basic sense check to gain perspective on how Assured Guaranty is doing by evaluating its latest earnings with its longer term trend as well as its industry peers' performance over the same period.
Despite a decline, did AGO underperform the long-term trend and the industry?
AGO's trailing twelve-month earnings (from 30 June 2019) of US$444m has declined by -16% 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 -17%, indicating the rate at which AGO is growing has slowed down. Why is this? Well, let's look at what's occurring with margins and whether the entire industry is experiencing the hit as well.
In terms of returns from investment, Assured Guaranty has fallen short of achieving a 20% return on equity (ROE), recording 6.6% instead. However, its return on assets (ROA) of 3.9% exceeds the US Insurance industry of 2.5%, indicating Assured Guaranty has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Assured Guaranty’s debt level, has declined over the past 3 years from 9.1% to 6.4%.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Usually companies that experience a drawn out period of reduction in earnings are undergoing some sort of reinvestment phase Though if the entire industry is struggling to grow over time, it may be a indicator of a structural shift, which makes Assured Guaranty and its peers a riskier investment. You should continue to research Assured Guaranty to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for AGO’s future growth? Take a look at our free research report of analyst consensus for AGO’s outlook.
Financial Health: Are AGO’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 30 June 2019. This may not be consistent with full year annual report figures.
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