Should You Be Concerned About Brookfield Asset Management Inc’s (TSE:BAM.A) -77.7% Earnings Decline?
After looking at Brookfield Asset Management Inc’s (TSX:BAM.A) latest earnings announcement (30 September 2017), I found it useful to revisit the company’s performance in the past couple of years and assess this against the most recent figures. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is a crucial aspect. Below is a brief commentary on my key takeaways. View our latest analysis for Brookfield Asset Management
How Well Did BAM.A Perform?
For the most up-to-date info, I use the ‘latest twelve-month’ data, which either annualizes the most recent 6-month earnings update, or in some cases, the most recent annual report is already the latest available financial data. This method enables me to examine various companies in a uniform manner using new information. “For Brookfield Asset Management, its “, latest earnings is $450.0M, which compared to the prior year’s figure, has dropped by a large -77.75%. Given that these figures may be fairly myopic, I have computed an annualized five-year value for BAM.A’s earnings, which stands at $1,865.1M. This doesn’t seem to paint a better picture, as earnings seem to have steadily been deteriorating over time.
Why could this be happening? Let’s examine what’s going on with margins and whether the whole industry is experiencing the hit as well. Revenue growth over the past few years, has been positive, nevertheless earnings growth has been declining. This means Brookfield Asset Management has been growing expenses, which is hurting margins and earnings, and is not a sustainable practice. Eyeballing growth from a sector-level, the Canadian capital markets industry has been relatively flat in terms of earnings growth over the prior year, settling down from a robust 10.82% over the past couple of years. This means any near-term headwind the industry is enduring, it’s hitting Brookfield Asset Management harder than its peers.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Generally companies that endure a drawn out period of reduction in earnings are going through 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 Brookfield Asset Management and its peers a higher risk investment. I suggest you continue to research Brookfield Asset Management to get a better picture of the stock by looking at:
1. Financial Health: Is BAM.A’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.
2. Valuation: What is BAM.A worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether BAM.A is currently mispriced by the market.
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 last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.
To help readers see pass 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.
