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Does Freedom Foods Group Limited's (ASX:FNP) -9.0% Earnings Drop Reflect A Longer Term Trend?

Simply Wall St

For investors with a long-term horizon, assessing earnings trend over time and against industry benchmarks is more valuable than looking at a single earnings announcement in one point in time. Investors may find my commentary, albeit very high-level and brief, on Freedom Foods Group Limited (ASX:FNP) useful as an attempt to give more color around how Freedom Foods Group is currently performing.

Check out our latest analysis for Freedom Foods Group

Commentary On FNP's Past Performance

FNP's trailing twelve-month earnings (from 30 June 2019) of AU$12m has declined by -9.0% compared to the previous year.

Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of -32%, indicating the rate at which FNP is growing has slowed down. Why is this? Let's examine what's transpiring with margins and whether the rest of the industry is facing the same headwind.

ASX:FNP Income Statement, December 2nd 2019
ASX:FNP Income Statement, December 2nd 2019

In terms of returns from investment, Freedom Foods Group has fallen short of achieving a 20% return on equity (ROE), recording 1.7% instead. Furthermore, its return on assets (ROA) of 1.6% is below the AU Food industry of 5.1%, indicating Freedom Foods Group's are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Freedom Foods Group’s debt level, has declined over the past 3 years from 3.1% to 2.6%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 0.8% to 17% over the past 5 years.

What does this mean?

Freedom Foods Group's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. Usually companies that endure a drawn out period of diminishing earnings are going through some sort of reinvestment phase However, if the whole industry is struggling to grow over time, it may be a sign of a structural change, which makes Freedom Foods Group and its peers a higher risk investment. I recommend you continue to research Freedom Foods Group to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for FNP’s future growth? Take a look at our free research report of analyst consensus for FNP’s outlook.

  2. Financial Health: Are FNP’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 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.