Examining how Smith & Nephew plc (LON:SN.) is performing as a company requires looking at more than just a years' earnings. Below, I will run you through a simple sense check to build perspective on how Smith & Nephew is doing by comparing its most recent earnings with its historical trend, in addition to the performance of its medical equipment industry peers.
Despite a decline, did SN. underperform the long-term trend and the industry?
SN.'s trailing twelve-month earnings (from 31 December 2018) of US$663m has declined by -14% compared to the previous year.
Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 10.0%, indicating the rate at which SN. is growing has slowed down. Why is this? Well, let’s take a look at what’s transpiring with margins and whether the entire industry is experiencing the hit as well.
In terms of returns from investment, Smith & Nephew has fallen short of achieving a 20% return on equity (ROE), recording 14% instead. Furthermore, its return on assets (ROA) of 8.9% is below the GB Medical Equipment industry of 8.9%, indicating Smith & Nephew's are utilized less efficiently. However, its return on capital (ROC), which also accounts for Smith & Nephew’s debt level, has increased over the past 3 years from 13% to 15%.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Companies that are profitable, but have unpredictable earnings, can have many factors affecting its business. I recommend you continue to research Smith & Nephew to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SN.’s future growth? Take a look at our free research report of analyst consensus for SN.’s outlook.
- Financial Health: Are SN.’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 2018. This may not be consistent with full year annual report figures.
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