In this commentary, I will examine Spectris plc’s (LON:SXS) latest earnings update (30 June 2018) and compare these figures against its performance over the past couple of years, as well as how the rest of the electronic industry performed. As an investor, I find it beneficial to assess SXS’s trend over the short-to-medium term in order to gauge whether or not the company is able to meet its goals, and ultimately sustainably grow over time.
Commentary On SXS’s Past Performance
SXS’s trailing twelve-month earnings (from 30 June 2018) of UK£291.7m has more than doubled from UK£10.3m in the prior year. Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of -0.5%, indicating the rate at which SXS is growing has accelerated. How has it been able to do this? Well, let’s take a look at whether it is merely because of industry tailwinds, or if Spectris has seen some company-specific growth.
Over the past few years, Spectris top-line expansion has outpaced earnings and the growth rate of expenses. Though this has led to a margin contraction, it has moderated Spectris’s earnings contraction. Looking at growth from a sector-level, the UK electronic industry has been growing average earnings growth of 62.4% in the past twelve months, and a less exciting 8.0% over the last five years. This growth is a median of profitable companies of 18 Electronic companies in GB including Zytronic, Smart Metering Systems and Solid State. This means any tailwind the industry is deriving benefit from, Spectris is able to amplify this to its advantage.
In terms of returns from investment, Spectris has invested its equity funds well leading to a 25.8% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 15.2% exceeds the GB Electronic industry of 7.1%, indicating Spectris has used its assets more efficiently. However, its return on capital (ROC), which also accounts for Spectris’s debt level, has declined over the past 3 years from 15.3% to 12.5%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 23.7% to 25.6% over the past 5 years.
What does this mean?
Spectris’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? I recommend you continue to research Spectris to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SXS’s future growth? Take a look at our free research report of analyst consensus for SXS’s outlook.
- Financial Health: Are SXS’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.