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 Capitol Health Limited’s (ASX:CAJ) 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. See our latest analysis for Capitol Health
How CAJ fared against its long-term earnings performance and its industry
CAJ’s trailing twelve-month earnings (from 31 December 2017) of AU$2.48m has jumped 71.01% compared to the previous year. Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of -1.32%, indicating the rate at which CAJ is growing has accelerated. What’s enabled this growth? Let’s see if it is only due to industry tailwinds, or if Capitol Health has experienced some company-specific growth.
Over the past couple of years, Capitol Health top-line expansion has outstripped earnings and the growth rate of expenses. Though this has led to a margin contraction, it has cushioned Capitol Health’s earnings contraction. Eyeballing growth from a sector-level, the Australian healthcare industry has been relatively flat in terms of earnings growth over the prior year, settling down from a robust 21.38% over the last five years. This suggests that whatever recent headwind the industry is experiencing, the impact on Capitol Health has been softer relative to its peers.
In terms of returns from investment, Capitol Health has not invested its equity funds well, leading to a 2.08% return on equity (ROE), below the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 2.87% is below the AU Healthcare industry of 6.45%, indicating Capitol Health’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Capitol Health’s debt level, has declined over the past 3 years from 14.22% to 3.05%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 18.30% to 44.01% over the past 5 years.
What does this mean?
Capitol Health’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Recent positive growth doesn’t necessarily mean it’s onwards and upwards for the company.
You should continue to research Capitol Health to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CAJ’s future growth? Take a look at our free research report of analyst consensus for CAJ’s outlook.
- Financial Health: Is CAJ’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 December 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.