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Technology One Limited (ASX:TNE): Has Recent Earnings Growth Beaten Long-Term Trend?

Simply Wall St

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After looking at Technology One Limited's (ASX:TNE) latest earnings announcement (31 March 2019), 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.

View our latest analysis for Technology One

How TNE fared against its long-term earnings performance and its industry

TNE's trailing twelve-month earnings (from 31 March 2019) of AU$61m has jumped 36% compared to the previous year.

Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 14%, indicating the rate at which TNE is growing has accelerated. What's enabled this growth? Let's take a look at whether it is only due to industry tailwinds, or if Technology One has seen some company-specific growth.

ASX:TNE Income Statement, June 10th 2019

In terms of returns from investment, Technology One has invested its equity funds well leading to a 80% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 24% exceeds the AU Software industry of 11%, indicating Technology One has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Technology One’s debt level, has increased over the past 3 years from 35% to 101%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 5.1% to 0.006% over the past 5 years.

What does this mean?

Though Technology One's past data is helpful, it is only one aspect of my investment thesis. While Technology One has a good historical track record with positive growth and profitability, there's no certainty that this will extrapolate into the future. You should continue to research Technology One to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for TNE’s future growth? Take a look at our free research report of analyst consensus for TNE’s outlook.
  2. Financial Health: Are TNE’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.
  3. 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 2019. This may not be consistent with full year annual report figures.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Thank you for reading.