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Vp plc (LON:VP.): Does The Earnings Decline Make It An Underperformer?

Simply Wall St

When Vp plc's (LSE:VP.) announced its latest earnings (30 September 2019), I wanted to understand how these figures stacked up against its past performance. The two benchmarks I used were Vp's average earnings over the past couple of years, and its industry performance. These are useful yardsticks to help me gauge whether or not VP. actually performed well. Below is a quick commentary on how I see VP. has performed.

Check out our latest analysis for Vp

Commentary On VP.'s Past Performance

VP.'s trailing twelve-month earnings (from 30 September 2019) of UK£25m has declined by -5.7% 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 6.7%, indicating the rate at which VP. is growing has slowed down. Why could this be happening? Well, let’s take a look at what’s transpiring with margins and whether the rest of the industry is experiencing the hit as well.

LSE:VP. Income Statement, January 17th 2020

In terms of returns from investment, Vp has fallen short of achieving a 20% return on equity (ROE), recording 14% instead. Furthermore, its return on assets (ROA) of 6.1% is below the GB Trade Distributors industry of 7.0%, indicating Vp's are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Vp’s debt level, has declined over the past 3 years from 13% to 11%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 66% to 113% over the past 5 years.

What does this mean?

Though Vp'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 suggest you continue to research Vp to get a better picture of the stock by looking at:

  1. Financial Health: Are VP.’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.
  2. Valuation: What is VP. worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether VP. is currently mispriced by the market.
  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 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 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.

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