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Should You Be Concerned With CENTROTEC Sustainable AG's (ETR:CEV) -3.4% Earnings Drop?

Simply Wall St

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.

See our latest analysis for CENTROTEC Sustainable

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.

XTRA:CEV Income Statement, September 14th 2019

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:

  1. 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.
  2. 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.
  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 30 June 2019. 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.