Assessing Insurance Australia Group Limited's (ASX:IAG) past track record of performance is a valuable exercise for investors. It enables us to reflect on whether the company has met or exceed expectations, which is a great indicator for future performance. Today I will assess IAG's recent performance announced on 30 June 2019 and evaluate these figures to its longer term trend and industry movements.
Despite a decline, did IAG underperform the long-term trend and the industry?
IAG's trailing twelve-month earnings (from 30 June 2019) of AU$871m has declined by -8.0% 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 -4.2%, indicating the rate at which IAG is growing has slowed down. Why is this? Let's examine what's occurring with margins and if the whole industry is facing the same headwind.
In terms of returns from investment, Insurance Australia Group has fallen short of achieving a 20% return on equity (ROE), recording 14% instead. Furthermore, its return on assets (ROA) of 3.3% is below the AU Insurance industry of 4.3%, indicating Insurance Australia Group's are utilized less efficiently. However, its return on capital (ROC), which also accounts for Insurance Australia Group’s debt level, has increased over the past 3 years from 7.2% to 9.1%.
What does this mean?
Though Insurance Australia Group's past data is helpful, it is only one aspect of my investment thesis. Typically companies that experience a drawn out period of diminishing earnings are undergoing some sort of reinvestment phase Although, if the entire industry is struggling to grow over time, it may be a signal of a structural shift, which makes Insurance Australia Group and its peers a riskier investment. I recommend you continue to research Insurance Australia Group to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for IAG’s future growth? Take a look at our free research report of analyst consensus for IAG’s outlook.
- Financial Health: Are IAG’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 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 email@example.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.