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Direct Line Insurance Group plc (LON:DLG): Has Recent Earnings Growth Beaten Long-Term Trend?

Simply Wall St

For long term investors, improvement in profitability and outperformance against the industry can be important characteristics in a stock. In this article, I will take a look at Direct Line Insurance Group plc's (LSE:DLG) track record on a high level, to give you some insight into how the company has been performing against its historical trend and its industry peers.

View our latest analysis for Direct Line Insurance Group

Commentary On DLG's Past Performance

DLG's trailing twelve-month earnings (from 30 June 2019) of UK£431m has jumped 11% compared to the previous year.

Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 3.6%, indicating the rate at which DLG is growing has accelerated. How has it been able to do this? Let's take a look at if it is only because of an industry uplift, or if Direct Line Insurance Group has experienced some company-specific growth.

LSE:DLG Income Statement, October 31st 2019

In terms of returns from investment, Direct Line Insurance Group has fallen short of achieving a 20% return on equity (ROE), recording 16% instead. However, its return on assets (ROA) of 4.8% exceeds the GB Insurance industry of 0.7%, indicating Direct Line Insurance Group has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Direct Line Insurance Group’s debt level, has increased over the past 3 years from 15% to 17%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 20% to 11% over the past 5 years.

What does this mean?

Though Direct Line Insurance Group's past data is helpful, it is only one aspect of my investment thesis. Companies that have performed well in the past, such as Direct Line Insurance Group gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. I recommend you continue to research Direct Line Insurance Group to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for DLG’s future growth? Take a look at our free research report of analyst consensus for DLG’s outlook.
  2. Financial Health: Are DLG’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 30 June 2019. This may not be consistent with full year annual report figures.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.