In this commentary, I will examine The Children's Place, Inc.'s (NasdaqGS:PLCE) latest earnings update (03 August 2019) and compare these figures against its performance over the past couple of years, as well as how the rest of the specialty retail industry performed. As an investor, I find it beneficial to assess PLCE’s trend over the short-to-medium term in order to gauge whether or not the company is able to meet its goals, and ultimately sustainably grow over time.
Commentary On PLCE's Past Performance
PLCE's trailing twelve-month earnings (from 03 August 2019) of US$68m has declined by -7.3% 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 8.9%, indicating the rate at which PLCE is growing has slowed down. Why is this? Well, let’s take a look at what’s going on with margins and whether the rest of the industry is feeling the heat.
In terms of returns from investment, Children's Place has invested its equity funds well leading to a 27% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 5.6% exceeds the US Specialty Retail industry of 5.6%, indicating Children's Place has used its assets more efficiently. However, its return on capital (ROC), which also accounts for Children's Place’s debt level, has declined over the past 3 years from 23% to 14%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 4.5% to 79% over the past 5 years.
What does this mean?
Children's Place's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. In some cases, companies that face an extended period of diminishing earnings are going through some sort of reinvestment phase with the aim of keeping up with the latest industry disruption and expansion. You should continue to research Children's Place to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for PLCE’s future growth? Take a look at our free research report of analyst consensus for PLCE’s outlook.
- Financial Health: Are PLCE’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 03 August 2019. This may not be consistent with full year annual report figures.
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