Investors with a long-term horizong may find it valuable to assess First Resources Limited's (SGX:EB5) earnings trend over time and against its industry benchmark as opposed to simply looking at a sincle earnings announcement at one point in time. Below is my commentary, albiet very simple and high-level, on how First Resources is currently performing.
Was EB5 weak performance lately part of a long-term decline?
EB5's trailing twelve-month earnings (from 31 March 2019) of US$105m has declined by -11% compared to the previous year.
Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of -9.3%, indicating the rate at which EB5 is growing has slowed down. Why could this be happening? Let's examine what's going on with margins and if the whole industry is facing the same headwind.
In terms of returns from investment, First Resources has fallen short of achieving a 20% return on equity (ROE), recording 11% instead. However, its return on assets (ROA) of 7.6% exceeds the SG Food industry of 4.7%, indicating First Resources has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for First Resources’s debt level, has increased over the past 3 years from 9.5% to 11%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 42% to 37% over the past 5 years.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Generally companies that experience a drawn out period of diminishing earnings are going through some sort of reinvestment phase Though if the whole industry is struggling to grow over time, it may be a sign of a structural change, which makes First Resources and its peers a higher risk investment. I recommend you continue to research First Resources to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for EB5’s future growth? Take a look at our free research report of analyst consensus for EB5’s outlook.
- Financial Health: Are EB5’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 31 March 2019. 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 email@example.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.