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.
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.
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:
- 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.
- 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.
- 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.
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