Analyzing Essent Group Ltd’s (NYSE:ESNT) track record of past performance is a valuable exercise for investors. It enables us to reflect on whether or not the company has met expectations, which is a powerful signal for future performance. Today I will assess ESNT’s recent performance announced on 30 June 2018 and compare these figures to its long-term trend and industry movements.
Were ESNT’s earnings stronger than its past performances and the industry?
ESNT’s trailing twelve-month earnings (from 30 June 2018) of US$463.9m has jumped 77.6% compared to the previous year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 48.1%, indicating the rate at which ESNT is growing has accelerated. What’s the driver of this growth? Well, let’s take a look at if it is only owing to an industry uplift, or if Essent Group has seen some company-specific growth.
Over the last couple of years, Essent Group expanded its bottom line faster than revenue by effectively controlling its costs. This has led to a margin expansion and profitability over time.
Looking at growth from a sector-level, the US mortgage industry has been growing, albeit, at a unexciting single-digit rate of 9.4% over the previous year, and a substantial 13.6% over the past half a decade. This growth is a median of profitable companies of 25 Mortgage companies in US including BV Financial, FSB Bancorp and Bancorp 34. This suggests that whatever tailwind the industry is benefiting from, Essent Group is able to leverage this to its advantage.
In terms of returns from investment, Essent Group has invested its equity funds well leading to a 22.1% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 16.6% exceeds the US Mortgage industry of 0.7%, indicating Essent Group has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Essent Group’s debt level, has increased over the past 3 years from 16.8% to 18.8%.
What does this mean?
Though Essent Group’s past data is helpful, it is only one aspect of my investment thesis. 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 Essent Group to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ESNT’s future growth? Take a look at our free research report of analyst consensus for ESNT’s outlook.
- Financial Health: Are ESNT’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 June 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 firstname.lastname@example.org.