Understanding how HomeServe plc (LON:HSV) is performing as a company requires looking at more than just a years' earnings. Today I will run you through a basic sense check to gain perspective on how HomeServe is doing by comparing its latest earnings with its long-term trend as well as the performance of its commercial services industry peers.
Did HSV beat its long-term earnings growth trend and its industry?
HSV's trailing twelve-month earnings (from 31 March 2019) of UK£109m has jumped 13% compared to the previous year.
However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 25%, indicating the rate at which HSV is growing has slowed down. Why could this be happening? Well, let's look at what's occurring with margins and whether the whole industry is experiencing the hit as well.
In terms of returns from investment, HomeServe has fallen short of achieving a 20% return on equity (ROE), recording 18% instead. However, its return on assets (ROA) of 8.4% exceeds the GB Commercial Services industry of 5.0%, indicating HomeServe has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for HomeServe’s debt level, has declined over the past 3 years from 16% to 15%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 39% to 61% over the past 5 years.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Companies that have performed well in the past, such as HomeServe gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. I recommend you continue to research HomeServe to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for HSV’s future growth? Take a look at our free research report of analyst consensus for HSV’s outlook.
- Financial Health: Are HSV’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 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 email@example.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.