After looking at Legrand SA’s (EPA:LR) latest earnings announcement (30 September 2018), 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 pay close attention to earnings trend, rather than the figures published at one point in time. I also compare against an industry benchmark to check whether Legrand’s performance has been impacted by industry movements. In this article I briefly touch on my key findings.
Could LR beat the long-term trend and outperform its industry?
LR’s trailing twelve-month earnings (from 30 September 2018) of €811m has jumped 20% compared to the previous year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 9.0%, indicating the rate at which LR is growing has accelerated. How has it been able to do this? Well, let’s take a look at if it is merely owing to industry tailwinds, or if Legrand has experienced some company-specific growth.
In terms of returns from investment, Legrand has fallen short of achieving a 20% return on equity (ROE), recording 19% instead. However, its return on assets (ROA) of 9.1% exceeds the FR Electrical industry of 5.7%, indicating Legrand has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Legrand’s debt level, has declined over the past 3 years from 15% to 13%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 50% to 70% over the past 5 years.
What does this mean?
Though Legrand’s past data is helpful, it is only one aspect of my investment thesis. Companies that have performed well in the past, such as Legrand gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. You should continue to research Legrand to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for LR’s future growth? Take a look at our free research report of analyst consensus for LR’s outlook.
- Financial Health: Are LR’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 30 September 2018. This may not be consistent with full year annual report figures.
To help readers see past 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. For errors that warrant correction please contact the editor at email@example.com.