After reading HomeServe plc’s (LSE:HSV) latest earnings update (30 September 2017), I found it beneficial to look back at how the company has performed in the past and compare this against the most recent numbers. As a long-term investor I tend to pay attention to earnings trend, rather than a single number at one point in time. I also like to compare against an industry benchmark to understand whether HSV has outperformed, or whether it is simply riding an industry wave. Below is a brief commentary on my key takeaways. Check out our latest analysis for HomeServe
Were HSV’s earnings stronger than its past performances and the industry?
I look at the ‘latest twelve-month’ data, which annualizes the most recent half-year data, or in some cases, the latest annual report is already the most recent financial year data. This blend enables me to assess different stocks on a similar basis, using the latest information. HomeServe’s latest twelve-month earnings is £73.7M, which, against last year’s level, has jumped up by 18.11%. Since these values are relatively myopic, I’ve determined an annualized five-year value for HSV’s net income, which stands at £62.3M. This shows that, generally, HomeServe has been able to gradually improve its net income over the last few years as well.
What’s enabled this growth? Let’s take a look at whether it is solely attributable to industry tailwinds, or if HomeServe has experienced some company-specific growth. In the last few years, HomeServe top-line expansion has outpaced earnings and the growth rate of expenses. Though this resulted in a margin contraction, it has lessened HomeServe’s earnings contraction. Viewing growth from a sector-level, the UK commercial services industry has been multiplying growth, more than doubling average earnings over the previous year, and a less exciting 6.16% over the past couple of years. This means whatever uplift the industry is enjoying, HomeServe has not been able to reap as much as its average peer.
What does this mean?
Though HomeServe’s past data is helpful, it is only one aspect of my investment thesis. While HomeServe has a good historical track record with positive growth and profitability, there’s no certainty that this will extrapolate into the future. I suggest you continue to research HomeServe to get a more holistic view of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for HSV’s future growth? Take a look at our free research report of analyst consensus for HSV’s outlook.
2. Financial Health: Is HSV’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 last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.
To help readers see pass 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.