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Should Capgemini SE's (EPA:CAP) Recent Earnings Decline Worry You?

Simply Wall St

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For long-term investors, assessing earnings trend over time and against industry benchmarks is more beneficial than examining a single earnings announcement at a point in time. Investors may find my commentary, albeit very high-level and brief, on Capgemini SE (EPA:CAP) useful as an attempt to give more color around how Capgemini is currently performing.

View our latest analysis for Capgemini

Commentary On CAP's Past Performance

CAP's trailing twelve-month earnings (from 31 December 2018) of €730m has declined by -11% 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 8.3%, indicating the rate at which CAP is growing has slowed down. What could be happening here? Let's examine what's going on with margins and if the entire industry is experiencing the hit as well.

ENXTPA:CAP Income Statement, June 30th 2019

In terms of returns from investment, Capgemini has fallen short of achieving a 20% return on equity (ROE), recording 9.7% instead. However, its return on assets (ROA) of 4.5% exceeds the FR IT industry of 4.4%, indicating Capgemini has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Capgemini’s debt level, has increased over the past 3 years from 9.7% to 11%.

What does this mean?

Though Capgemini's past data is helpful, it is only one aspect of my investment thesis. Companies that are profitable, but have capricious earnings, can have many factors impacting its business. I suggest you continue to research Capgemini to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for CAP’s future growth? Take a look at our free research report of analyst consensus for CAP’s outlook.
  2. Financial Health: Are CAP’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 December 2018. 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.