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Does DS Smith Plc's (LON:SMDS) 11% Earnings Growth Make It An Outperformer?

Simply Wall St

After looking at DS Smith Plc's (LON:SMDS) latest earnings announcement (30 April 2019), 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.

View our latest analysis for DS Smith

How Did SMDS's Recent Performance Stack Up Against Its Past?

SMDS's trailing twelve-month earnings (from 30 April 2019) of UK£262m has jumped 11% compared to the previous year.

However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 14%, indicating the rate at which SMDS is growing has slowed down. What could be happening here? Well, let’s take a look at what’s transpiring with margins and if the whole industry is facing the same headwind.

LSE:SMDS Income Statement, September 2nd 2019

In terms of returns from investment, DS Smith has fallen short of achieving a 20% return on equity (ROE), recording 8.4% instead. However, its return on assets (ROA) of 3.8% exceeds the GB Packaging industry of 2.9%, indicating DS Smith has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for DS Smith’s debt level, has declined over the past 3 years from 13% to 8.5%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 80% to 88% over the past 5 years.

What does this mean?

DS Smith's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? I recommend you continue to research DS Smith to get a better picture of the stock by looking at:

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