In this article, I will take a look at Bapcor Limited's (ASX:BAP) most recent earnings update (30 June 2019) and compare these latest figures against its performance over the past few years, along with how the rest of BAP's industry performed. As a long-term investor, I find it useful to analyze the company's trend over time in order to estimate whether or not the company is able to meet its goals, and eventually grow sustainably over time.
Did BAP's recent earnings growth beat the long-term trend and the industry?
BAP's trailing twelve-month earnings (from 30 June 2019) of AU$97m has jumped 14% 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 41%, indicating the rate at which BAP is growing has slowed down. Why could this be happening? Well, let's examine what's occurring with margins and whether the entire industry is experiencing the hit as well.
In terms of returns from investment, Bapcor has fallen short of achieving a 20% return on equity (ROE), recording 13% instead. However, its return on assets (ROA) of 8.3% exceeds the AU Retail Distributors industry of 3.8%, indicating Bapcor has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Bapcor’s debt level, has increased over the past 3 years from 13% to 13%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 75% to 53% over the past 5 years.
What does this mean?
Though Bapcor's past data is helpful, it is only one aspect of my investment thesis. While Bapcor has a good historical track record with positive growth and profitability, there's no certainty that this will extrapolate into the future. I suggest you continue to research Bapcor to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for BAP’s future growth? Take a look at our free research report of analyst consensus for BAP’s outlook.
- Financial Health: Are BAP’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.
If you spot an error that warrants correction, please contact the editor at email@example.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.
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