Improvement in profitability and outperformance against the industry can be important characteristics in a stock for some investors. Below, I will assess WH Smith PLC’s (LON:SMWH) track record on a high level, to give you some insight into how the company has been performing against its historical trend and its industry peers.
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Was SMWH weak performance lately part of a long-term decline?
SMWH’s trailing twelve-month earnings (from 31 August 2018) of UK£108m has declined by -6.9% 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 6.6%, indicating the rate at which SMWH is growing has slowed down. Why could this be happening? Well, let’s look at what’s transpiring with margins and whether the whole industry is feeling the heat.
In terms of returns from investment, WH Smith has invested its equity funds well leading to a 51% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 21% exceeds the GB Specialty Retail industry of 5.3%, indicating WH Smith has used its assets more efficiently. However, its return on capital (ROC), which also accounts for WH Smith’s debt level, has declined over the past 3 years from 69% to 59%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 0.4% to 22% over the past 5 years.
What does this mean?
WH Smith’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Companies that are profitable, but have capricious earnings, can have many factors impacting its business. I recommend you continue to research WH Smith to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SMWH’s future growth? Take a look at our free research report of analyst consensus for SMWH’s outlook.
- Financial Health: Are SMWH’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 31 August 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.