After reading Prime Financial Group Limited’s (ASX:PFG) most recent earnings announcement (30 June 2017), I found it useful to look back at how the company has performed in the past 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 a crucial aspect. Below is a brief commentary on my key takeaways. See our latest analysis for Prime Financial Group
Despite a decline, did PFG underperform the long-term trend and the industry?
For the most up-to-date info, I use data from the most recent 12 months, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This method enables me to examine various companies on a similar basis, using the latest information. For Prime Financial Group, the latest earnings is A$2.6M, which, relative to the previous year’s level, has declined by -27.93%. Since these values are somewhat short-term thinking, I have computed an annualized five-year value for PFG’s earnings, which stands at -A$0.4M. This means though earnings growth was negative from last year, over the longer term, Prime Financial Group’s profits have been growing on average.
What’s the driver of this growth? Let’s see if it is merely due to an industry uplift, or if Prime Financial Group has experienced some company-specific growth. In the last couple of years, Prime Financial Group top-line expansion has outstripped earnings and the growth rate of expenses. Though this resulted in a margin contraction, it has lessened Prime Financial Group’s earnings contraction. Inspecting growth from a sector-level, the Australian capital markets industry has been growing, albeit, at a unexciting single-digit rate of 3.16% in the past year, and 8.12% over the previous few years. This suggests that whatever near-term headwind the industry is enduring, it’s hitting Prime Financial Group harder than its peers.
What does this mean?
Though Prime Financial Group’s past data is helpful, it is only one aspect of my investment thesis. Companies are profitable, but have volatile earnings, can have many factors impacting its business. I suggest you continue to research Prime Financial Group to get a more holistic view of the stock by looking at:
1. Financial Health: Is PFG’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.