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Should Telford Homes Plc's (LON:TEF) Recent Earnings Decline Worry You?

Simply Wall St

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When Telford Homes Plc (LON:TEF) released its most recent earnings update (31 March 2019), I wanted to understand how these figures stacked up against its past performance. The two benchmarks I used were Telford Homes's average earnings over the past couple of years, and its industry performance. These are useful yardsticks to help me gauge whether or not TEF actually performed well. Below is a quick commentary on how I see TEF has performed.

See our latest analysis for Telford Homes

Was TEF's recent earnings decline indicative of a tough track record?

TEF's trailing twelve-month earnings (from 31 March 2019) of UK£34m has declined by -10% 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 17%, indicating the rate at which TEF is growing has slowed down. Why is this? Well, let's look at what's going on with margins and if the rest of the industry is feeling the heat.

AIM:TEF Income Statement, June 29th 2019

In terms of returns from investment, Telford Homes has fallen short of achieving a 20% return on equity (ROE), recording 13% instead. Furthermore, its return on assets (ROA) of 8.0% is below the GB Consumer Durables industry of 10%, indicating Telford Homes's are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Telford Homes’s debt level, has declined over the past 3 years from 18% to 15%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 27% to 42% over the past 5 years.

What does this mean?

Though Telford Homes's past data is helpful, it is only one aspect of my investment thesis. Companies that are profitable, but have capricious earnings, can have many factors influencing its business. I recommend you continue to research Telford Homes to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for TEF’s future growth? Take a look at our free research report of analyst consensus for TEF’s outlook.
  2. Financial Health: Are TEF’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.