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Was G8 Education Limited's (ASX:GEM) Earnings Decline Part Of A Broader Industry Downturn?

Simply Wall St

Analyzing G8 Education Limited's (ASX:GEM) 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 GEM's recent performance announced on 30 June 2019 and compare these figures to its long-term trend and industry movements.

Check out our latest analysis for G8 Education

Was GEM's recent earnings decline worse than the long-term trend and the industry?

GEM's trailing twelve-month earnings (from 30 June 2019) of AU$67m has declined by -9.2% 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 5.7%, indicating the rate at which GEM is growing has slowed down. Why could this be happening? Well, let's look at what's occurring with margins and if the rest of the industry is experiencing the hit as well.

ASX:GEM Income Statement, October 12th 2019

In terms of returns from investment, G8 Education has fallen short of achieving a 20% return on equity (ROE), recording 8.2% instead. Furthermore, its return on assets (ROA) of 5.7% is below the AU Consumer Services industry of 6.3%, indicating G8 Education's are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for G8 Education’s debt level, has declined over the past 3 years from 15% to 7.9%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 45% to 49% over the past 5 years.

What does this mean?

Though G8 Education's past data is helpful, it is only one aspect of my investment thesis. Companies that are profitable, but have capricious earnings, can have many factors influencing its business. I recommend you continue to research G8 Education to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for GEM’s future growth? Take a look at our free research report of analyst consensus for GEM’s outlook.
  2. Financial Health: Are GEM’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 30 June 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 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.