After reading McMillan Shakespeare Limited’s (ASX:MMS) latest earnings update (30 June 2017), I found it beneficial to look back at how the company has performed in the past and compare this against the most recent numbers. As a long-term investor I tend to pay attention to earnings trend, rather than a single number at one point in time. I also like to compare against an industry benchmark to understand whether MMS has outperformed, or whether it is simply riding an industry wave. Below is a brief commentary on my key takeaways. See our latest analysis for McMillan Shakespeare
Was MMS weak performance lately part of a long-term decline?
To account for any quarterly or half-yearly updates, 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 enables me to examine many different companies on a more comparable basis, using new information. “For McMillan Shakespeare, its “, latest twelve-month earnings is A$67.9M, which, against last year’s level, has plunged by -17.66%. Since these figures may be fairly short-term thinking, I’ve determined an annualized five-year value for MMS’s earnings, which stands at A$62.3M. This suggests that despite the fact that earnings growth was negative against the previous year, over time, McMillan Shakespeare’s earnings have been increasing on average.
What’s enabled this growth? Let’s see whether it is merely attributable to an industry uplift, or if McMillan Shakespeare has experienced some company-specific growth. The hike in earnings seems to be supported by a solid top-line increase overtaking its growth rate of expenses. Though this resulted in a margin contraction, it has made McMillan Shakespeare more profitable. Eyeballing growth from a sector-level, the Australian professional services industry has been enduring some headwinds over the prior year, leading to an average earnings drop of -12.07%. This is a major change, given that the industry has been delivering a positive rate of 5.08%, on average, over the past five years. This means that whatever near-term headwind the industry is enduring, it’s hitting McMillan Shakespeare harder than its peers.
What does this mean?
McMillan Shakespeare’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Companies are profitable, but have volatile earnings, can have many factors influencing its business. You should continue to research McMillan Shakespeare to get a better picture of the stock by looking at: