After looking at OSRAM Licht AG’s (ETR:OSR) latest earnings announcement (30 June 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 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 a crucial aspect. Below is a brief commentary on my key takeaways.
Despite a decline, did OSR underperform the long-term trend and the industry?
OSR’s trailing twelve-month earnings (from 30 June 2018) of €183.00m has declined by -44.21% 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 30.59%, indicating the rate at which OSR is growing has slowed down. What could be happening here? Well, let’s look at what’s transpiring with margins and if the entire industry is facing the same headwind.
Over the last couple of years, revenue growth has been lagging behind earnings, which implies that OSRAM Licht’s bottom line has been driven by unmaintainable cost-reductions. Scanning growth from a sector-level, the DE electrical industry has been growing, albeit, at a unexciting single-digit rate of 6.97% over the previous twelve months, and a substantial 14.79% over the past five. This growth is a median of profitable companies of 23 Electrical companies in DE including AS Harju Elekter, Jiangnan Group and PNE Wind. This means that whatever tailwind the industry is enjoying, OSRAM Licht has not been able to leverage it as much as its industry peers.
In terms of returns from investment, OSRAM Licht has fallen short of achieving a 20% return on equity (ROE), recording 7.40% instead. Furthermore, its return on assets (ROA) of 4.46% is below the DE Electrical industry of 6.07%, indicating OSRAM Licht’s are utilized less efficiently. However, its return on capital (ROC), which also accounts for OSRAM Licht’s debt level, has increased over the past 3 years from 5.32% to 8.08%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 38.76% to 7.76% over the past 5 years.
What does this mean?
Though OSRAM Licht’s past data is helpful, it is only one aspect of my investment thesis. Generally companies that experience a drawn out period of reduction in earnings are undergoing some sort of reinvestment phase with the aim of keeping up with the latest industry expansion and disruption. I recommend you continue to research OSRAM Licht to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for OSR’s future growth? Take a look at our free research report of analyst consensus for OSR’s outlook.
- Financial Health: Are OSR’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.