Should You Be Concerned About World Acceptance Corporation’s (NASDAQ:WRLD) Earnings Growth?
For long term investors, improvement in profitability and outperformance against the industry can be important characteristics in a stock. In this article, I will take a look at World Acceptance Corporation’s (NASDAQ:WRLD) track record on a high level, to give you some insight into how the company has been performing against its historical trend and its industry peers.
Check out our latest analysis for World Acceptance
How Well Did WRLD Perform?
WRLD’s trailing twelve-month earnings (from 30 June 2018) of US$58.1m has declined by -14.8% 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 -7.7%, indicating the rate at which WRLD is growing has slowed down. Why could this be happening? Let’s examine what’s going on with margins and whether the entire industry is facing the same headwind.
Although revenue growth over the last couple of years, has been negative, earnings growth has been falling by even more, implying that World Acceptance has been increasing its expenses. This hurts margins and earnings, and is not a sustainable practice.
Eyeballing growth from a sector-level, the US consumer finance industry has been growing its average earnings by double-digit 25.9% over the prior twelve months, and a less exciting 8.0% over the past five years. This growth is a median of profitable companies of 24 Consumer Finance companies in US including American Express, Srisawad and Capital One Financial. This means any tailwind the industry is enjoying, World Acceptance has not been able to realize the gains unlike its industry peers.
In terms of returns from investment, World Acceptance has fallen short of achieving a 20% return on equity (ROE), recording 11.2% instead. However, its return on assets (ROA) of 9.5% exceeds the US Consumer Finance industry of 5.0%, indicating World Acceptance has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for World Acceptance’s debt level, has declined over the past 3 years from 21.5% to 13.9%.
What does this mean?
World Acceptance’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Usually companies that endure a prolonged period of diminishing earnings are undergoing some sort of reinvestment phase with the aim of keeping up with the recent industry disruption and expansion. I suggest you continue to research World Acceptance to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for WRLD’s future growth? Take a look at our free research report of analyst consensus for WRLD’s outlook.
Financial Health: Are WRLD’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 2018. This may not be consistent with full year annual report figures.
To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
