After looking at Cineplex Inc’s (TSE:CGX) latest earnings update (31 March 2018), I found it helpful to revisit the company’s performance in the past couple of years and compare this against the latest numbers. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is an important aspect. In this article I briefly touch on my key findings. Check out our latest analysis for Cineplex
Commentary On CGX’s Past Performance
CGX’s trailing twelve-month earnings (from 31 March 2018) of CA$62.66m has declined by -22.78% 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 3.66%, indicating the rate at which CGX is growing has slowed down. What could be happening here? Well, let’s take a look at what’s going on with margins and if the entire industry is experiencing the hit as well.
Revenue growth in the past few years, has been positive, however, earnings growth has failed to keep up meaning Cineplex has been growing its expenses by a lot more. This harms margins and earnings, and is not a sustainable practice. Inspecting growth from a sector-level, the Canadian media industry has been enduring some headwinds over the past few years, leading to an average earnings drop of -15.34% in the most recent year. This means any headwind the industry is enduring, it’s hitting Cineplex harder than its peers.
In terms of returns from investment, Cineplex has not invested its equity funds well, leading to a 8.94% return on equity (ROE), below the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 4.84% is below the CA Media industry of 5.37%, indicating Cineplex’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Cineplex’s debt level, has declined over the past 3 years from 7.96% to 6.43%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 25.36% to 84.08% over the past 5 years.
What does this mean?
Cineplex’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Usually companies that experience a prolonged period of decline in earnings are undergoing some sort of reinvestment phase However, if the entire industry is struggling to grow over time, it may be a signal of a structural change, which makes Cineplex and its peers a riskier investment. I suggest you continue to research Cineplex to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CGX’s future growth? Take a look at our free research report of analyst consensus for CGX’s outlook.
- Financial Health: Is CGX’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 2018. This may not be consistent with full year annual report figures.
To help readers see pass 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.