After reading HomeServe plc’s (LSE:HSV) most recent earnings announcement (30 September 2017), I found it useful to look back at how the company has performed in the past 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 a crucial aspect. 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?
For the most up-to-date info, I use 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 technique enables me to analyze different companies on a more comparable basis, using new information. For HomeServe, its most recent bottom-line (trailing twelve month) is UK£73.70M, which, in comparison to last year’s figure, has jumped up by 18.11%. Given that these figures are fairly nearsighted, I have calculated an annualized five-year value for HomeServe’s net income, which stands at UK£61.35M This means that, generally, HomeServe has been able to increasingly grow its net income over the last couple of years as well.
What’s enabled this growth? Well, let’s take a look at if it is solely attributable to industry tailwinds, or if HomeServe has seen some company-specific growth. In the past few years, HomeServe top-line expansion has outpaced earnings and the growth rate of expenses. Though this has led to a margin contraction, it has cushioned HomeServe’s earnings contraction. Viewing growth from a sector-level, the UK commercial services industry has been growing, albeit, at a muted single-digit rate of 3.74% in the previous year, and 8.21% over the past half a decade. This suggests that whatever near-term headwind the industry is facing, HomeServe is less exposed compared to its peers.
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 better picture 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 trailing twelve months from 30 September 2017. 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.