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Does First Derivatives plc's (LON:FDP) Past Performance Indicate A Stronger Future?

Simply Wall St

When First Derivatives plc (LON:FDP) released its most recent earnings update (28 February 2019), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Understanding how First Derivatives performed requires a benchmark rather than trying to assess a standalone number at one point in time. Below is a quick commentary on how I see FDP has performed.

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Did FDP beat its long-term earnings growth trend and its industry?

FDP's trailing twelve-month earnings (from 28 February 2019) of UK£13m has jumped 29% compared to the previous year.

Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 2.3%, indicating the rate at which FDP is growing has accelerated. What's the driver of this growth? Let's see if it is merely owing to an industry uplift, or if First Derivatives has experienced some company-specific growth.

AIM:FDP Income Statement, May 23rd 2019

In terms of returns from investment, First Derivatives has fallen short of achieving a 20% return on equity (ROE), recording 9.2% instead. However, its return on assets (ROA) of 5.3% exceeds the GB Software industry of 4.3%, indicating First Derivatives has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for First Derivatives’s debt level, has increased over the past 3 years from 6.4% to 12%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 30% to 25% 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. While First Derivatives has a good historical track record with positive growth and profitability, there's no certainty that this will extrapolate into the future. You should continue to research First Derivatives to get a more holistic view of the stock by looking at:

  1. 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.
  2. 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.
  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 28 February 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.