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Does Arthur J. Gallagher & Co.'s (NYSE:AJG) 32% Earnings Growth Reflect The Long-Term Trend?

Simply Wall St

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For investors with a long-term horizon, assessing earnings trend over time and against industry benchmarks is more valuable than looking at a single earnings announcement in one point in time. Investors may find my commentary, albeit very high-level and brief, on Arthur J. Gallagher & Co. (NYSE:AJG) useful as an attempt to give more color around how Arthur J. Gallagher is currently performing.

View our latest analysis for Arthur J. Gallagher

How Did AJG's Recent Performance Stack Up Against Its Past?

AJG's trailing twelve-month earnings (from 31 March 2019) of US$694m has jumped 32% compared to the previous year.

Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 18%, indicating the rate at which AJG is growing has accelerated. What's enabled this growth? Well, let’s take a look at whether it is merely owing to an industry uplift, or if Arthur J. Gallagher has experienced some company-specific growth.

NYSE:AJG Income Statement, May 13th 2019

In terms of returns from investment, Arthur J. Gallagher has fallen short of achieving a 20% return on equity (ROE), recording 15% instead. However, its return on assets (ROA) of 4.1% exceeds the US Insurance industry of 2.4%, indicating Arthur J. Gallagher has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Arthur J. Gallagher’s debt level, has declined over the past 3 years from 7.5% to 6.6%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 88% to 93% over the past 5 years.

What does this mean?

Though Arthur J. Gallagher's past data is helpful, it is only one aspect of my investment thesis. Companies that have performed well in the past, such as Arthur J. Gallagher gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. You should continue to research Arthur J. Gallagher to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for AJG’s future growth? Take a look at our free research report of analyst consensus for AJG’s outlook.
  2. Financial Health: Are AJG’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 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 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. Thank you for reading.