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For investors with a long-term horizon, assessing earnings trend over time and against industry benchmarks is more valuable than looking at a single earnings announcement in one point in time. Investors may find my commentary, albeit very high-level and brief, on Baby Bunting Group Limited (ASX:BBN) useful as an attempt to give more color around how Baby Bunting Group is currently performing.
Check out our latest analysis for Baby Bunting Group
Was BBN’s weak performance lately a part of a long-term decline?
BBN’s trailing twelve-month earnings (from 31 December 2017) of AU$10.51m has declined by -6.87% 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 30.49%, indicating the rate at which BBN is growing has slowed down. Why could this be happening? Well, let’s take a look at what’s going on with margins and whether the rest of the industry is feeling the heat.
Over the last couple of years, revenue growth has not been able to catch up, which suggests that Baby Bunting Group’s bottom line has been propelled by unmaintainable cost-cutting. Scanning growth from a sector-level, the Australian specialty retail industry has been growing, albeit, at a unexciting single-digit rate of 8.34% in the previous year, and a substantial 16.19% over the past five years. This growth is a median of profitable companies of 24 Specialty Retail companies in AU including PAS Group, Automotive Holdings Group and Vita Group. This means that whatever tailwind the industry is enjoying, Baby Bunting Group has not been able to gain as much as its industry peers.
In terms of returns from investment, Baby Bunting Group has not invested its equity funds well, leading to a 11.30% return on equity (ROE), below the sensible minimum of 20%. However, its return on assets (ROA) of 7.98% exceeds the AU Specialty Retail industry of 6.90%, indicating Baby Bunting Group has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Baby Bunting Group’s debt level, has increased over the past 3 years from 10.62% to 14.80%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 16.57% to 6.49% over the past 5 years.
What does this mean?
Baby Bunting Group’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 unpredictable earnings, can have many factors influencing its business. I suggest you continue to research Baby Bunting Group to get a more holistic view of the stock by looking at: