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GWA Group Limited (ASX:GWA): Should The Recent Earnings Drop Worry You?

Simply Wall St

Assessing GWA Group Limited's (ASX:GWA) past track record of performance is a valuable exercise for investors. It enables us to reflect on whether the company has met or exceed expectations, which is a great indicator for future performance. Today I will assess GWA's recent performance announced on 30 June 2019 and evaluate these figures to its longer term trend and industry movements.

View our latest analysis for GWA Group

How Did GWA's Recent Performance Stack Up Against Its Past?

GWA's trailing twelve-month earnings (from 30 June 2019) of AU$44m has declined by -12% 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 16%, indicating the rate at which GWA is growing has slowed down. What could be happening here? Well, let's look at what's going on with margins and whether the whole industry is feeling the heat.

ASX:GWA Income Statement, December 11th 2019
ASX:GWA Income Statement, December 11th 2019

In terms of returns from investment, GWA Group has fallen short of achieving a 20% return on equity (ROE), recording 12% instead. However, its return on assets (ROA) of 7.5% exceeds the AU Building industry of 5.6%, indicating GWA Group has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for GWA Group’s debt level, has declined over the past 3 years from 18% to 14%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 41% to 48% over the past 5 years.

What does this mean?

Though GWA Group'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 impacting its business. I suggest you continue to research GWA Group to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for GWA’s future growth? Take a look at our free research report of analyst consensus for GWA’s outlook.

  2. Financial Health: Are GWA’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.

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.

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. Thank you for reading.