James Latham plc’s (LON:LTHM) Earnings Grew 15%, Did It Beat Long-Term Trend?
After looking at James Latham plc’s (LON:LTHM) latest earnings announcement (31 March 2018), I found it useful to revisit the company’s performance in the past couple of years and assess this against the most recent figures. As a long term investor, I pay close attention to earnings trend, rather than the figures published at one point in time. I also compare against an industry benchmark to check whether James Latham’s performance has been impacted by industry movements. In this article I briefly touch on my key findings.
See our latest analysis for James Latham
Were LTHM’s earnings stronger than its past performances and the industry?
LTHM’s trailing twelve-month earnings (from 31 March 2018) of UK£13m has jumped 15% compared to the previous year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 13%, indicating the rate at which LTHM is growing has accelerated. How has it been able to do this? Let’s take a look at whether it is merely a result of industry tailwinds, or if James Latham has seen some company-specific growth.
Over the last few years, James Latham grew its bottom line faster than revenue by successfully controlling its costs. This has caused a margin expansion and profitability over time.
Looking at growth from a sector-level, the UK trade distributors industry has been growing its average earnings by double-digit 14% in the previous year, and 13% over the last five years. This growth is a median of profitable companies of 13 Trade Distributors companies in GB including Ferguson, Avation and Andrews Sykes Group. This shows that any uplift the industry is benefiting from, James Latham is capable of amplifying this to its advantage.
In terms of returns from investment, James Latham has fallen short of achieving a 20% return on equity (ROE), recording 14% instead. However, its return on assets (ROA) of 9.6% exceeds the GB Trade Distributors industry of 8.8%, indicating James Latham has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for James Latham’s debt level, has increased over the past 3 years from 13% to 14%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 5.0% to 1.1% over the past 5 years.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Companies that have performed well in the past, such as James Latham gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. You should continue to research James Latham to get a more holistic view of the stock by looking at:
Financial Health: Are LTHM’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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
