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dotdigital Group Plc's (LON:DOTD) Earnings Grew 18%, Did It Beat Long-Term Trend?

Simply Wall St

Increase in profitability and industry-beating performance can be essential considerations in a stock for some investors. In this article, I will take a look at dotdigital Group Plc's (LON:DOTD) track record on a high level, to give you some insight into how the company has been performing against its historical trend and its industry peers.

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How DOTD fared against its long-term earnings performance and its industry

DOTD's trailing twelve-month earnings (from 31 December 2018) of UK£8.8m has jumped 18% 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 20%, indicating the rate at which DOTD is growing has slowed down. Why could this be happening? Well, let's examine what's occurring with margins and if the whole industry is feeling the heat.

AIM:DOTD Income Statement, May 21st 2019

In terms of returns from investment, dotdigital Group has invested its equity funds well leading to a 23% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 17% exceeds the GB Software industry of 4.7%, indicating dotdigital Group has used its assets more efficiently. However, its return on capital (ROC), which also accounts for dotdigital Group’s debt level, has declined over the past 3 years from 27% to 25%.

What does this mean?

dotdigital Group's track record can be a valuable insight into its earnings performance, but it certainly 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 suggest you continue to research dotdigital Group to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for DOTD’s future growth? Take a look at our free research report of analyst consensus for DOTD’s outlook.
  2. Financial Health: Are DOTD’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 31 December 2018. This may not be consistent with full year annual report figures.

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.

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. Thank you for reading.