Yahoo Finance How Does Spirax-Sarco Engineering plc’s (LON:SPX) Earnings Growth Stack Up Against Industry Performance?
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 Spirax-Sarco Engineering plc’s (LON:SPX) 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.
See our latest analysis for Spirax-Sarco Engineering
Commentary On SPX’s Past Performance
SPX’s trailing twelve-month earnings (from 30 June 2018) of UK£174.2m has jumped 33.5% compared to the previous year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 9.1%, indicating the rate at which SPX is growing has accelerated. How has it been able to do this? Let’s see if it is merely attributable to an industry uplift, or if Spirax-Sarco Engineering has seen some company-specific growth.
In the past couple of years, Spirax-Sarco Engineering increased its bottom line faster than revenue by successfully controlling its costs. This brought about a margin expansion and profitability over time.
Looking at growth from a sector-level, the UK machinery industry has been growing its average earnings by double-digit 18.8% over the prior year, and a flatter -1.5% over the past five years. This growth is a median of profitable companies of 19 Machinery companies in GB including Morgan Advanced Materials, Tex Holdings and Amiad Water Systems. This means in the recent industry expansion, Spirax-Sarco Engineering is able to amplify this to its advantage.
In terms of returns from investment, Spirax-Sarco Engineering has invested its equity funds well leading to a 27.1% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 12.0% exceeds the GB Machinery industry of 7.1%, indicating Spirax-Sarco Engineering has used its assets more efficiently. However, its return on capital (ROC), which also accounts for Spirax-Sarco Engineering’s debt level, has declined over the past 3 years from 30.9% to 17.6%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 10.9% to 85.3% over the past 5 years.
What does this mean?
While past data is useful, it doesn’t tell the whole story. While Spirax-Sarco Engineering has a good historical track record with positive growth and profitability, there’s no certainty that this will extrapolate into the future. I suggest you continue to research Spirax-Sarco Engineering to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for SPX’s future growth? Take a look at our free research report of analyst consensus for SPX’s outlook.
Financial Health: Are SPX’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 June 2018. This may not be consistent with full year annual report figures.
To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
