After looking at HMS Holdings Corp.'s (NasdaqGS:HMSY) latest earnings announcement (31 March 2020), 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.
Did HMSY's recent earnings growth beat the long-term trend and the industry?
HMSY's trailing twelve-month earnings (from 31 March 2020) of US$80m has jumped 17% compared to the previous year.
However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 35%, indicating the rate at which HMSY is growing has slowed down. What could be happening here? Well, let's look at what's occurring with margins and whether the whole industry is feeling the heat.
In terms of returns from investment, HMS Holdings has fallen short of achieving a 20% return on equity (ROE), recording 9.1% instead. Furthermore, its return on assets (ROA) of 7.0% is below the US Healthcare Services industry of 7.1%, indicating HMS Holdings's are utilized less efficiently. However, its return on capital (ROC), which also accounts for HMS Holdings’s debt level, has increased over the past 3 years from 6.5% to 8.9%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 36% to 27% over the past 5 years.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? I recommend you continue to research HMS Holdings to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for HMSY’s future growth? Take a look at our free research report of analyst consensus for HMSY’s outlook.
- Financial Health: Are HMSY’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 31 March 2020. This may not be consistent with full year annual report figures.
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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Thank you for reading.