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How Has CareTech Holdings PLC’s (LON:CTH) Performed Against The Industry?

Improvement in profitability and outperformance against the industry can be important characteristics in a stock for some investors. Below, I will assess CareTech Holdings PLC’s (LON:CTH) track record on a high level, to give you some insight into how the company has been performing against its historical trend and its industry peers.

See our latest analysis for CareTech Holdings

Despite a decline, did CTH underperform the long-term trend and the industry?

CTH’s trailing twelve-month earnings (from 31 March 2018) of UK£19.00m has declined by -2.69% 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 12.95%, indicating the rate at which CTH is growing has slowed down. What could be happening here? Let’s examine what’s transpiring with margins and if the whole industry is experiencing the hit as well.

In the past couple of years, revenue growth has not been able to catch up, which implies that CareTech Holdings’s bottom line has been driven by unmaintainable cost-reductions. Looking at growth from a sector-level, the UK healthcare industry has been enduring some headwinds over the prior twelve months, leading to an average earnings drop of -19.97%. This is a momentous change, given that the industry has constantly been delivering a a robust growth of 21.72% in the past five years. This growth is a median of profitable companies of 7 Healthcare companies in GB including Animalcare Group, Spire Healthcare Group and UDG Healthcare. This suggests that whatever recent headwind the industry is enduring, CareTech Holdings is relatively better-cushioned than its peers.

AIM:CTH Income Statement Export August 17th 18
AIM:CTH Income Statement Export August 17th 18

In terms of returns from investment, CareTech Holdings has fallen short of achieving a 20% return on equity (ROE), recording 9.12% instead. However, its return on assets (ROA) of 5.66% exceeds the GB Healthcare industry of 4.51%, indicating CareTech Holdings has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for CareTech Holdings’s debt level, has increased over the past 3 years from 4.70% to 6.12%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 180.37% to 75.57% over the past 5 years.

What does this mean?

CareTech Holdings’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Companies that are profitable, but have volatile earnings, can have many factors affecting its business. I recommend you continue to research CareTech Holdings to get a better picture of the stock by looking at:

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

  2. Financial Health: Are CTH’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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

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