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Should You Be Concerned With VSE Corporation's (NASDAQ:VSEC) -16% Earnings Drop?

Simply Wall St

Assessing VSE Corporation's (NasdaqGS:VSEC) past track record of performance is a valuable exercise for investors. It enables us to reflect on whether the company has met or exceed expectations, which is a great indicator for future performance. Today I will assess VSEC's recent performance announced on 30 September 2019 and evaluate these figures to its longer term trend and industry movements.

View our latest analysis for VSE

Despite a decline, did VSEC underperform the long-term trend and the industry?

VSEC's trailing twelve-month earnings (from 30 September 2019) of US$36m has declined by -16% 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 14%, indicating the rate at which VSEC is growing has slowed down. Why could this be happening? Well, let's look at what's going on with margins and whether the whole industry is experiencing the hit as well.

NasdaqGS:VSEC Income Statement, December 24th 2019

In terms of returns from investment, VSE has fallen short of achieving a 20% return on equity (ROE), recording 10% instead. Furthermore, its return on assets (ROA) of 5.9% is below the US Commercial Services industry of 6.4%, indicating VSE's are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for VSE’s debt level, has declined over the past 3 years from 10% to 8.6%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 28% to 76% over the past 5 years.

What does this mean?

While past data is useful, it doesn’t tell the whole story. Companies that are profitable, but have volatile earnings, can have many factors affecting its business. I recommend you continue to research VSE to get a better picture of the stock by looking at:

  1. Financial Health: Are VSEC’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 VSEC 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 VSEC 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 trailing twelve months from 30 September 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.