In this commentary, I will examine Supply Network Limited's (ASX:SNL) latest earnings update (30 June 2019) and compare these figures against its performance over the past couple of years, as well as how the rest of the retail distributors industry performed. As an investor, I find it beneficial to assess SNL’s trend over the short-to-medium term in order to gauge whether or not the company is able to meet its goals, and ultimately sustainably grow over time.
How Well Did SNL Perform?
SNL's trailing twelve-month earnings (from 30 June 2019) of AU$8.7m has increased by 6.3% compared to the previous year.
However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 11%, indicating the rate at which SNL is growing has slowed down. Why could this be happening? Well, let’s take a look at what’s transpiring with margins and whether the whole industry is feeling the heat.
In terms of returns from investment, Supply Network has invested its equity funds well leading to a 23% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 13% exceeds the AU Retail Distributors industry of 3.5%, indicating Supply Network has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Supply Network’s debt level, has increased over the past 3 years from 22% to 27%.
What does this mean?
Though Supply Network's past data is helpful, it is only one aspect of my investment thesis. Companies that have performed well in the past, such as Supply Network gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. I recommend you continue to research Supply Network to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SNL’s future growth? Take a look at our free research report of analyst consensus for SNL’s outlook.
- Financial Health: Are SNL’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 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 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.
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