U.S. Markets close in 1 hr 21 mins

Does GB Group plc's (LON:GBG) Past Performance Indicate A Stronger Future?

Simply Wall St

After looking at GB Group plc's (AIM:GBG) latest earnings update (30 September 2019), I found it helpful to revisit the company's performance in the past couple of years 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 an important aspect. In this article I briefly touch on my key findings.

Check out our latest analysis for GB Group

Commentary On GBG's Past Performance

GBG's trailing twelve-month earnings (from 30 September 2019) of UK£15m has jumped 35% compared to the previous year.

Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 21%, indicating the rate at which GBG is growing has accelerated. What's the driver of this growth? Let's take a look at whether it is solely due to an industry uplift, or if GB Group has seen some company-specific growth.

AIM:GBG Income Statement, December 25th 2019

In terms of returns from investment, GB Group has fallen short of achieving a 20% return on equity (ROE), recording 4.4% instead. Furthermore, its return on assets (ROA) of 3.1% is below the GB Software industry of 6.1%, indicating GB Group's are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for GB Group’s debt level, has declined over the past 3 years from 9.2% to 5.5%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 12% to 23% over the past 5 years.

What does this mean?

While past data is useful, it doesn’t tell the whole story. While GB Group 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 GB Group to get a more holistic view of the stock by looking at:

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