Today I will examine InvoCare Limited's (ASX:IVC) latest earnings update (30 June 2019) and compare these figures against its performance over the past couple of years, in addition to how the rest of IVC's industry performed. As a long-term investor, I find it useful to analyze the company's trend over time in order to estimate whether or not the company is able to meet its goals, and eventually grow sustainably over time.
Was IVC's weak performance lately a part of a long-term decline?
IVC's trailing twelve-month earnings (from 30 June 2019) of AU$61m has declined by -20% 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 5.6%, indicating the rate at which IVC is growing has slowed down. Why could this be happening? Well, let’s take a look at what’s going on with margins and whether the entire industry is experiencing the hit as well.
In terms of returns from investment, InvoCare has invested its equity funds well leading to a 21% return on equity (ROE), above the sensible minimum of 20%. However, its return on assets (ROA) of 5.2% is below the AU Consumer Services industry of 6.3%, indicating InvoCare's are utilized less efficiently. Furthermore, its return on capital (ROC), which also accounts for InvoCare’s debt level, has declined over the past 3 years from 9.3% to 6.4%.
What does this mean?
InvoCare's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. Companies that are profitable, but have unpredictable earnings, can have many factors influencing its business. You should continue to research InvoCare to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for IVC’s future growth? Take a look at our free research report of analyst consensus for IVC’s outlook.
- Financial Health: Are IVC’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.
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