Understanding Mistras Group Inc’s (NYSE:MG) 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 Mistras Group is doing by evaluating its latest earnings with its longer term trend as well as its industry peers’ performance over the same period.
Despite a decline, did MG underperform the long-term trend and the industry?
MG’s trailing twelve-month earnings (from 30 June 2018) of US$2.8m has more than halved from US$16.4m in the prior year. Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of -10.5%, indicating the rate at which MG is growing has slowed down. Why could this be happening? Let’s examine what’s occurring with margins and whether the whole industry is experiencing the hit as well.
Revenue growth over the past few years, has been positive, yet earnings growth has been declining. This suggest that Mistras Group has been increasing expenses, which is hurting margins and earnings, and is not a sustainable practice. Viewing growth from a sector-level, the US professional services industry has been growing its average earnings by double-digit 18.4% in the previous twelve months, and 11.5% over the past five years. This growth is a median of profitable companies of 24 Professional Services companies in US including Command Center, InnerWorkings and DLH Holdings. This shows that whatever uplift the industry is deriving benefit from, Mistras Group has not been able to gain as much as its average peer.
In terms of returns from investment, Mistras Group has fallen short of achieving a 20% return on equity (ROE), recording 1.0% instead. Furthermore, its return on assets (ROA) of 1.6% is below the US Professional Services industry of 7.4%, indicating Mistras Group’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Mistras Group’s debt level, has declined over the past 3 years from 6.6% to 5.2%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 35.6% to 59.7% over the past 5 years.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Usually companies that endure a prolonged period of diminishing earnings are undergoing some sort of reinvestment phase with the aim of keeping up with the recent industry disruption and expansion. I recommend you continue to research Mistras Group to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for MG’s future growth? Take a look at our free research report of analyst consensus for MG’s outlook.
Financial Health: Are MG’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 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 firstname.lastname@example.org.