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Should You Be Concerned With NZX Limited's (NZSE:NZX) -2.5% Earnings Drop?

Simply Wall St

Examining NZX Limited's (NZSE:NZX) past track record of performance is a valuable exercise for investors. It enables us to understand whether the company has met or exceed expectations, which is a powerful signal for future performance. Below, I will assess NZX's latest performance announced on 30 June 2019 and weigh these figures against its longer term trend and industry movements.

View our latest analysis for NZX

Did NZX perform worse than its track record and industry?

NZX's trailing twelve-month earnings (from 30 June 2019) of NZ$13m has declined by -2.5% 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 -6.1%, indicating the rate at which NZX is growing has slowed down. Why could this be happening? Let's examine what's transpiring with margins and whether the whole industry is facing the same headwind.

NZSE:NZX Income Statement, December 20th 2019

In terms of returns from investment, NZX has invested its equity funds well leading to a 21% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 7.1% exceeds the NZ Capital Markets industry of 5.9%, indicating NZX has used its assets more efficiently. However, its return on capital (ROC), which also accounts for NZX’s debt level, has declined over the past 3 years from 20% to 18%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 4.2% to 62% over the past 5 years.

What does this mean?

NZX'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 experience a prolonged period of reduction in earnings are undergoing some sort of reinvestment phase However, if the entire industry is struggling to grow over time, it may be a sign of a structural shift, which makes NZX and its peers a riskier investment. You should continue to research NZX to get a better picture of the stock by looking at:

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

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.

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. Thank you for reading.