When Sika AG (VTX:SIKA) released its most recent earnings update (31 December 2017), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Being able to interpret how well Sika has done so far requires weighing its performance against a benchmark, rather than looking at a standalone number at a point in time. In this article, I’ve summarized the key takeaways on how I see SIKA has performed. View out our latest analysis for Sika
How SIKA fared against its long-term earnings performance and its industry
SIKA’s trailing twelve-month earnings (from 31 December 2017) of CHF643.50m has jumped 14.28% 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 16.59%, indicating the rate at which SIKA is growing has slowed down. To understand what’s happening, let’s look at what’s transpiring with margins and if the rest of the industry is experiencing the hit as well.
In the past couple of years, revenue growth has failed to keep up which suggests that Sika’s bottom line has been driven by unsustainable cost-cutting. Viewing growth from a sector-level, the CH chemicals industry has been growing its average earnings by double-digit 14.28% in the prior twelve months, and a less exciting 9.51% over the past five years.
In terms of returns from investment, Sika has not invested its equity funds well, leading to a 19.03% return on equity (ROE), below the sensible minimum of 20%. However, its return on assets (ROA) of 11.39% exceeds the CH Chemicals industry of 6.62%, indicating Sika has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Sika’s debt level, has increased over the past 3 years from 15.29% to 19.50%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 58.16% to 21.18% over the past 5 years.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Companies that have performed well in the past, such as Sika gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. I suggest you continue to research Sika to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SIKA’s future growth? Take a look at our free research report of analyst consensus for SIKA’s outlook.
- Financial Health: Is SIKA’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 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.