After looking at CENTROTEC Sustainable AG's (ETR:CEV) latest earnings announcement (30 June 2019), 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.
Was CEV's recent earnings decline indicative of a tough track record?
CEV's trailing twelve-month earnings (from 30 June 2019) of €18m has declined by -3.4% 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 -4.6%, indicating the rate at which CEV is growing has slowed down. Why is this? Well, let’s take a look at what’s going on with margins and if the whole industry is facing the same headwind.
In terms of returns from investment, CENTROTEC Sustainable has fallen short of achieving a 20% return on equity (ROE), recording 7.8% instead. Furthermore, its return on assets (ROA) of 3.6% is below the DE Building industry of 5.1%, indicating CENTROTEC Sustainable's are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for CENTROTEC Sustainable’s debt level, has declined over the past 3 years from 7.9% to 6.5%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 44% to 83% over the past 5 years.
What does this mean?
CENTROTEC Sustainable's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. Generally companies that face a drawn out period of decline in earnings are going through some sort of reinvestment phase Although, if the entire industry is struggling to grow over time, it may be a indicator of a structural shift, which makes CENTROTEC Sustainable and its peers a riskier investment. You should continue to research CENTROTEC Sustainable to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CEV’s future growth? Take a look at our free research report of analyst consensus for CEV’s outlook.
- Financial Health: Are CEV’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.
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