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Should Bayer Aktiengesellschaft’s (FRA:BAYN) Recent Earnings Decline Worry You?

Examining Bayer Aktiengesellschaft’s (DB:BAYN) past track record of performance is a valuable exercise for investors. It enables us to understand whether the company has met or exceed expectations, which is a powerful signal for future performance. Below, I will assess BAYN’s latest performance announced on 31 March 2018 and weigh these figures against its longer term trend and industry movements. View our latest analysis for Bayer

Despite a decline, did BAYN underperform the long-term trend and the industry?

I prefer 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 technique enables me to assess various companies on a similar basis, using new information. For Bayer, its most recent earnings (trailing twelve month) is €3.49B, which, against the prior year’s level, has fallen by -12.65%. Given that these figures may be fairly myopic, I have determined an annualized five-year value for BAYN’s net income, which stands at €3.16B This suggests that though earnings declined against the prior year, over a longer period of time, Bayer’s profits have been rising on average.

DB:BAYN Income Statement Jun 12th 18
DB:BAYN Income Statement Jun 12th 18

How has it been able to do this? Let’s take a look at whether it is only owing to an industry uplift, or if Bayer has experienced some company-specific growth. In the past couple of years, Bayer increased bottom-line, while its top-line declined, by efficiently managing its costs. This resulted in to a margin expansion and profitability over time. Viewing growth from a sector-level, the DE pharmaceuticals industry has been growing, albeit, at a muted single-digit rate of 6.08% in the prior year, and 7.90% over the last five years. This means that any uplift the industry is benefiting from, Bayer has not been able to realize the gains unlike its average peer.

What does this mean?

Bayer’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 impacting its business. I suggest you continue to research Bayer to get a better picture of the stock by looking at:

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  1. Future Outlook: What are well-informed industry analysts predicting for BAYN’s future growth? Take a look at our free research report of analyst consensus for BAYN’s outlook.

  2. Financial Health: Is BAYN’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.

  3. 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 March 2018. 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.