Understanding how Scandinavian Tobacco Group A/S (CPSE:STG) is performing as a company requires looking at more than just a years' earnings. Today I will run you through a basic sense check to gain perspective on how Scandinavian Tobacco Group is doing by comparing its latest earnings with its long-term trend as well as the performance of its tobacco industry peers.
Was STG's recent earnings decline worse than the long-term trend and the industry?
STG's trailing twelve-month earnings (from 30 September 2019) of ø620m has declined by -19% 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 0.4%, indicating the rate at which STG is growing has slowed down. What could be happening here? Well, let’s take a look at what’s going on with margins and whether the rest of the industry is facing the same headwind.
In terms of returns from investment, Scandinavian Tobacco Group has fallen short of achieving a 20% return on equity (ROE), recording 6.9% instead. Furthermore, its return on assets (ROA) of 5.0% is below the DK Tobacco industry of 12%, indicating Scandinavian Tobacco Group's are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Scandinavian Tobacco Group’s debt level, has declined over the past 3 years from 7.7% to 6.8%.
What does this mean?
Though Scandinavian Tobacco Group's past data is helpful, it is only one aspect of my investment thesis. Generally companies that face a prolonged period of diminishing earnings are undergoing some sort of reinvestment phase Though if the entire industry is struggling to grow over time, it may be a sign of a structural change, which makes Scandinavian Tobacco Group and its peers a riskier investment. I suggest you continue to research Scandinavian Tobacco Group to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for STG’s future growth? Take a look at our free research report of analyst consensus for STG’s outlook.
- Financial Health: Are STG’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 September 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 firstname.lastname@example.org. 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.
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