After looking at First Derivatives plc’s (LON:FDP) latest earnings announcement (28 February 2018), I found it useful to revisit the company’s performance in the past couple of years and assess this against the most recent figures. 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.
How FDP fared against its long-term earnings performance and its industry
FDP’s trailing twelve-month earnings (from 28 February 2018) of UK£10m has jumped 13% compared to the previous year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 8.6%, indicating the rate at which FDP is growing has accelerated. How has it been able to do this? Let’s take a look at if it is merely because of industry tailwinds, or if First Derivatives has experienced some company-specific growth.
In terms of returns from investment, First Derivatives has fallen short of achieving a 20% return on equity (ROE), recording 7.4% instead. Furthermore, its return on assets (ROA) of 4.5% is below the GB IT industry of 7.3%, indicating First Derivatives’s are utilized less efficiently. However, its return on capital (ROC), which also accounts for First Derivatives’s debt level, has increased over the past 3 years from 4.3% to 7.6%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 62% to 21% over the past 5 years.
What does this mean?
Though First Derivatives’s past data is helpful, it is only one aspect of my investment thesis. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? I suggest you continue to research First Derivatives to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for FDP’s future growth? Take a look at our free research report of analyst consensus for FDP’s outlook.
- Financial Health: Are FDP’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 28 February 2018. This may not be consistent with full year annual report figures.
To help readers see past 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. For errors that warrant correction please contact the editor at firstname.lastname@example.org.