After looking at The PAS Group Limited’s (ASX:PGR) latest earnings announcement (31 December 2017), I found it useful to revisit the company’s performance in the past couple of years and assess this against the most recent figures. 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 PAS Group
Was PGR’s recent earnings decline worse than the long-term trend and the industry?
For the purpose of this commentary, I like to use the ‘latest twelve-month’ data, which annualizes the most recent half-year data, or in some cases, the latest annual report is already the most recent financial year data. This method allows me to examine different companies on a similar basis, using the most relevant data points. For PAS Group, its most recent earnings (trailing twelve month) is AU$5.82M, which, in comparison to the previous year’s level, has taken a dive by a substantial -45.25%. Since these figures may be fairly myopic, I’ve determined an annualized five-year figure for PGR’s earnings, which stands at AU$7.16M This doesn’t seem to paint a better picture, as earnings seem to have gradually been deteriorating over the longer term.
Why could this be happening? Well, let’s take a look at what’s occurring with margins and whether the rest of the industry is facing the same headwind. In the past few years, revenue growth has fallen behind which implies that PAS Group’s bottom line has been propelled by unsustainable cost-reductions. Looking at growth from a sector-level, the Australian specialty retail industry has been growing, albeit, at a subdued single-digit rate of 8.34% in the previous year, and a substantial 16.37% over the previous five years. This means that any tailwind the industry is deriving benefit from, PAS Group has not been able to gain as much as its industry peers.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Usually companies that face a drawn out period of decline in earnings are going through some sort of reinvestment phase in order to keep up with the latest industry disruption and expansion. I recommend you continue to research PAS Group to get a more holistic view of the stock by looking at:
-
Financial Health: Is PGR’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.
-
Valuation: What is PGR worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether PGR is currently mispriced by the market.
-
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 December 2017. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.