Today I will examine Vesuvius plc’s (LON:VSVS) latest earnings update (30 June 2018) and compare these figures against its performance over the past couple of years, in addition to how the rest of VSVS’s industry performed. As a long-term investor, I find it useful to analyze the company’s trend over time in order to estimate whether or not the company is able to meet its goals, and eventually grow sustainably over time.
How Did VSVS’s Recent Performance Stack Up Against Its Past?
VSVS’s trailing twelve-month earnings (from 30 June 2018) of UK£61.0m has declined by -3.0% 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 1.1%, indicating the rate at which VSVS is growing has slowed down. Why is this? Let’s examine what’s occurring with margins and whether the entire industry is facing the same headwind.
Revenue growth in the past few years, has been positive, however, earnings growth has fallen behind meaning Vesuvius has been increasing its expenses by a lot more. This harms margins and earnings, and is not a sustainable practice. Looking at growth from a sector-level, the UK machinery industry has been growing its average earnings by double-digit 23.4% in the past year, and a flatter 1.0% over the past five. This growth is a median of profitable companies of 18 Machinery companies in GB including Morgan Advanced Materials, Tex Holdings and Rotork. This suggests that any uplift the industry is enjoying, Vesuvius has not been able to gain as much as its average peer.
In terms of returns from investment, Vesuvius has fallen short of achieving a 20% return on equity (ROE), recording 6.2% instead. Furthermore, its return on assets (ROA) of 3.4% is below the GB Machinery industry of 7.2%, indicating Vesuvius’s are utilized less efficiently. However, its return on capital (ROC), which also accounts for Vesuvius’s debt level, has increased over the past 3 years from 7.2% to 8.7%.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Companies that are profitable, but have volatile earnings, can have many factors affecting its business. I recommend you continue to research Vesuvius to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for VSVS’s future growth? Take a look at our free research report of analyst consensus for VSVS’s outlook.
- Financial Health: Are VSVS’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 email@example.com.