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Has Legrand SA (EPA:LR) Improved Earnings Growth In Recent Times?

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·3 min read
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Understanding Legrand SA's (ENXTPA:LR) performance as a company requires examining more than earnings from one point in time. Today I will take you through a basic sense check to gain perspective on how Legrand is doing by evaluating its latest earnings with its longer term trend as well as its industry peers' performance over the same period.

Check out our latest analysis for Legrand

Were LR's earnings stronger than its past performances and the industry?

LR's trailing twelve-month earnings (from 31 December 2019) of €835m has increased by 8.2% 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 LR is growing has slowed down. To understand what's happening, let's look at what's transpiring with margins and if the entire industry is feeling the heat.

ENXTPA:LR Income Statement May 6th 2020
ENXTPA:LR Income Statement May 6th 2020

In terms of returns from investment, Legrand has fallen short of achieving a 20% return on equity (ROE), recording 16% instead. However, its return on assets (ROA) of 7.7% exceeds the FR Electrical industry of 5.7%, indicating Legrand has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Legrand’s debt level, has declined over the past 3 years from 14% to 13%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 44% to 76% over the past 5 years.

What does this mean?

Though Legrand's past data is helpful, it is only one aspect of my investment thesis. Companies that have performed well in the past, such as Legrand gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. I recommend you continue to research Legrand to get a more holistic view of the stock by looking at:

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

  2. Financial Health: Are LR’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 31 December 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.