Should You Be Concerned With Pepees SA’s (WSE:PPS) -36.88% Earnings Drop?
When Pepees SA (WSE:PPS) announced its most recent earnings (31 March 2018), I did two things: looked at its past earnings track record, then look at what is happening in the industry. Understanding how Pepees performed requires a benchmark rather than trying to assess a standalone number at one point in time. Below is a quick commentary on how I see PPS has performed. See our latest analysis for Pepees
Despite a decline, did PPS underperform the long-term trend and the industry?
PPS’s trailing twelve-month earnings (from 31 March 2018) of zł12.82m has declined by -36.88% 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 23.96%, indicating the rate at which PPS is growing has slowed down. What could be happening here? Well, let’s look at what’s occurring with margins and whether the entire industry is feeling the heat.
In the past few years, revenue growth has been lagging behind which implies that Pepees’s bottom line has been driven by unsustainable cost-reductions. Viewing growth from a sector-level, the PL food industry has been growing, albeit, at a subdued single-digit rate of 6.29% in the previous year, and a substantial 10.25% over the previous five years. This means whatever tailwind the industry is profiting from, Pepees has not been able to leverage it as much as its industry peers.
In terms of returns from investment, Pepees has not invested its equity funds well, leading to a 8.47% return on equity (ROE), below the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 5.14% is below the PL Food industry of 5.42%, indicating Pepees’s are utilized less efficiently. However, its return on capital (ROC), which also accounts for Pepees’s debt level, has increased over the past 3 years from 5.01% to 11.34%.
What does this mean?
Pepees’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Companies that are profitable, but have capricious earnings, can have many factors affecting its business. You should continue to research Pepees to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for PPS’s future growth? Take a look at our free research report of analyst consensus for PPS’s outlook.
Financial Health: Is PPS’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 31 March 2018. 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.
