When Pfleiderer Group Spólka Akcyjna (WSE:PFL) released its most recent earnings update (31 March 2018), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Understanding how Pfleiderer Group Spólka Akcyjna performed requires a benchmark rather than trying to assess a standalone number at one point in time. Below is a quick commentary on how I see PFL has performed.
Was PFL’s recent earnings decline worse than the long-term trend and the industry?
PFL’s trailing twelve-month earnings (from 31 March 2018) of €14.1m has declined by -32.2% 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 13.9%, indicating the rate at which PFL is growing has slowed down. What could be happening here? Well, let’s take a look at what’s occurring with margins and whether the whole industry is experiencing the hit as well.
Revenue growth in the last couple of years, has been positive, however, earnings growth has not been able to catch up, meaning Pfleiderer Group Spólka Akcyjna has been increasing its expenses by a lot more. This hurts margins and earnings, and is not a sustainable practice. Inspecting growth from a sector-level, the PL forestry industry has been enduring some headwinds in the prior twelve months, leading to an average earnings drop of -5.3%. This is a major change, given that the industry has been delivering a positive rate of 8.9%, on average, over the previous five years. This growth is a median of profitable companies of 7 Forestry companies in PL including Stelmet, Arctic Paper and KLON Spólka Akcyjna. This shows that any recent headwind the industry is enduring, it’s hitting Pfleiderer Group Spólka Akcyjna harder than its peers.
In terms of returns from investment, Pfleiderer Group Spólka Akcyjna has fallen short of achieving a 20% return on equity (ROE), recording 6.2% instead. Furthermore, its return on assets (ROA) of 3.8% is below the PL Forestry industry of 4.1%, indicating Pfleiderer Group Spólka Akcyjna’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Pfleiderer Group Spólka Akcyjna’s debt level, has declined over the past 3 years from 14.2% to 5.0%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 39.7% to 161% over the past 5 years.
What does this mean?
Though Pfleiderer Group Spólka Akcyjna’s past data is helpful, it is only one aspect of my investment thesis. Usually companies that experience a prolonged period of reduction in earnings are going through some sort of reinvestment phase Although, if the whole industry is struggling to grow over time, it may be a sign of a structural shift, which makes Pfleiderer Group Spólka Akcyjna and its peers a riskier investment. I suggest you continue to research Pfleiderer Group Spólka Akcyjna to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for PFL’s future growth? Take a look at our free research report of analyst consensus for PFL’s outlook.
- Financial Health: Are PFL’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 firstname.lastname@example.org.