Does Direct Line Insurance Group PLC’s (LON:DLG) -18.04% Earnings Decline Reflect A Long-Term Trend?
After reading Direct Line Insurance Group PLC’s (LSE:DLG) most recent earnings announcement (30 June 2017), I found it useful to look back at how the company has performed in the past and compare this against the latest numbers. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is a crucial aspect. Below is a brief commentary on my key takeaways. Check out our latest analysis for Direct Line Insurance Group
Did DLG perform worse than its track record and industry?
I like to use the ‘latest twelve-month’ data, which either annualizes the most recent 6-month earnings update, or in some cases, the most recent annual report is already the latest available financial data. This technique allows me to analyze different stocks on a more comparable basis, using new information. For Direct Line Insurance Group, its most recent trailing-twelve-month earnings is £318.4M, which compared to the previous year’s level, has declined by -18.04%. Given that these values may be fairly short-term, I’ve determined an annualized five-year value for DLG’s earnings, which stands at £301.5M. This suggests that despite the fact that earnings declined from last year, over time, Direct Line Insurance Group’s profits have been increasing on average.
What’s the driver of this growth? Well, let’s take a look at whether it is solely because of industry tailwinds, or if Direct Line Insurance Group has seen some company-specific growth. In the past few years, Direct Line Insurance Group grew bottom-line, while its top-line fell, by efficiently controlling its costs. This has led to to a margin expansion and profitability over time. Scanning growth from a sector-level, the UK insurance industry has been growing, albeit, at a muted single-digit rate of 2.30% in the past twelve months, and 9.93% over the previous few years. This shows that whatever near-term headwind the industry is experiencing, it’s hitting Direct Line Insurance Group harder than its peers.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Companies are profitable, but have capricious earnings, can have many factors impacting its business. I suggest you continue to research Direct Line Insurance Group to get a more holistic view of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for DLG’s future growth? Take a look at our free research report of analyst consensus for DLG’s outlook.
2. Financial Health: Is DLG’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.