DS Smith Plc (LON:SMDS): Should The Recent Earnings Drop Worry You?
Examining DS Smith Plc’s (LSE:SMDS) past track record of performance is an insightful exercise for investors. It allows us to reflect on whether or not the company has met or exceed expectations, which is a great indicator for future performance. Today I will assess SMDS’s latest performance announced on 31 October 2017 and compare these figures to its longer term trend and industry movements. View our latest analysis for DS Smith
Did SMDS perform worse than its track record and industry?
I like to 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 blend allows me to analyze different companies on a similar basis, using the most relevant data points. For DS Smith, its most recent earnings (trailing twelve month) is £200.0M, which, relative to the prior year’s figure, has plunged by -5.66%. Given that these figures are relatively short-term thinking, I’ve estimated an annualized five-year figure for SMDS’s earnings, which stands at £118.8M. This suggests that even though earnings growth was negative against the previous year, over the past couple of years, DS Smith’s earnings have been rising on average.
What’s the driver of this growth? Let’s see if it is solely a result of industry tailwinds, or if DS Smith has seen some company-specific growth. Over the last couple of years, DS Smith grew its bottom line faster than revenue by efficiently controlling its costs. This resulted in a margin expansion and profitability over time. Looking at growth from a sector-level, the UK packaging industry has been growing its average earnings by double-digit 10.79% over the previous twelve months, and a more muted 6.21% over the past couple of years. This means any tailwind the industry is benefiting from, DS Smith has not been able to leverage it as much as its average peer.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Companies are profitable, but have volatile earnings, can have many factors influencing its business. I suggest you continue to research DS Smith to get a better picture of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for SMDS’s future growth? Take a look at our free research report of analyst consensus for SMDS’s outlook.
2. Financial Health: Is SMDS’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 October 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.
