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Does Ferguson plc's (LON:FERG) 26% Earnings Growth Reflect The Long-Term Trend?

Simply Wall St

When Ferguson plc (LSE:FERG) released its most recent earnings update (31 July 2019), I wanted to understand how these figures stacked up against its past performance. The two benchmarks I used were Ferguson's average earnings over the past couple of years, and its industry performance. These are useful yardsticks to help me gauge whether or not FERG actually performed well. Below is a quick commentary on how I see FERG has performed.

See our latest analysis for Ferguson

Could FERG beat the long-term trend and outperform its industry?

FERG's trailing twelve-month earnings (from 31 July 2019) of US$1.1b has jumped 26% compared to the previous year.

Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 12%, indicating the rate at which FERG is growing has accelerated. What's the driver of this growth? Let's take a look at whether it is solely a result of industry tailwinds, or if Ferguson has experienced some company-specific growth.

LSE:FERG Income Statement, January 15th 2020

In terms of returns from investment, Ferguson has invested its equity funds well leading to a 24% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 10% exceeds the GB Trade Distributors industry of 7.0%, indicating Ferguson has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Ferguson’s debt level, has increased over the past 3 years from 18% to 21%.

What does this mean?

Though Ferguson's past data is helpful, it is only one aspect of my investment thesis. While Ferguson has a good historical track record with positive growth and profitability, there's no certainty that this will extrapolate into the future. I recommend you continue to research Ferguson to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for FERG’s future growth? Take a look at our free research report of analyst consensus for FERG’s outlook.
  2. Financial Health: Are FERG’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 July 2019. This may not be consistent with full year annual report figures.

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.

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. Thank you for reading.