Did Rotork plc’s (LON:ROR) Recent Earnings Growth Beat The Trend?
In this commentary, I will examine Rotork plc’s (LSE:ROR) latest earnings update (30 June 2017) and compare these figures against its performance over the past couple of years, as well as how the rest of the industry industry performed. As an investor, I find it beneficial to assess ROR’s trend over the short-to-medium term in order to gauge whether or not the company is able to meet its goals, and ultimately sustainably grow over time. Check out our latest analysis for Rotork
Did ROR beat its long-term earnings growth trend and its industry?
For the most up-to-date info, I use the ‘latest twelve-month’ data, which annualizes the most recent half-year data, or in some cases, the latest annual report is already the most recent financial year data. This allows me to assess different stocks on a similar basis, using new information. For Rotork, its latest earnings (trailing twelve month) is £76.3M, which compared to the prior year’s level, has increased by 23.78%. Given that these figures are fairly short-term, I’ve calculated an annualized five-year figure for Rotork’s net income, which stands at £84.7M. This means that, despite the fact that earnings increased from last year’s level, over time, Rotork’s earnings have been diminishing on average.
Why could this be happening? Well, let’s take a look at what’s going on with margins and if the whole industry is feeling the heat. Revenue growth over the last few years, has been positive, yet earnings growth has been declining. This implies that Rotork has been growing expenses, which is hurting margins and earnings, and is not a sustainable practice. Eyeballing growth from a sector-level, the UK industry industry has been growing its average earnings by double-digit 20.42% in the prior year, and a flatter -1.86% over the previous few years. This shows that, in the recent industry expansion, Rotork is able to leverage this to its advantage.
What does this mean?
Though Rotork’s past data is helpful, it is only one aspect of my investment thesis. Recent positive growth isn’t always indicative of a continued optimistic outlook. There may be variables that are impacting the industry as a whole, hence the high industry growth rate over the same period of time. I suggest you continue to research Rotork to get a better picture of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for ROR’s future growth? Take a look at our free research report of analyst consensus for ROR’s outlook.
2. Financial Health: Is ROR’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 2017. 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.
