After looking at Amadeus IT Group, S.A.'s (BME:AMS) latest earnings update (31 March 2019), I found it helpful to revisit the company's performance in the past couple of years and compare this against the latest numbers. 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 an important aspect. In this article I briefly touch on my key findings.
Did AMS's recent earnings growth beat the long-term trend and the industry?
AMS's trailing twelve-month earnings (from 31 March 2019) of €1.0b has increased by 0.6% compared to the previous year.
However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 13%, indicating the rate at which AMS is growing has slowed down. To understand what's happening, let's examine what's transpiring with margins and if the whole industry is experiencing the hit as well.
In terms of returns from investment, Amadeus IT Group has invested its equity funds well leading to a 29% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 10% exceeds the ES IT industry of 5.9%, indicating Amadeus IT Group has used its assets more efficiently. However, its return on capital (ROC), which also accounts for Amadeus IT Group’s debt level, has declined over the past 3 years from 21% to 19%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 104% to 107% over the past 5 years.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Companies that have performed well in the past, such as Amadeus IT Group gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. I recommend you continue to research Amadeus IT Group to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AMS’s future growth? Take a look at our free research report of analyst consensus for AMS’s outlook.
- Financial Health: Are AMS’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 March 2019. This may not be consistent with full year annual report figures.
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