Examining Smith & Nephew plc's (LSE:SN.) past track record of performance is a useful exercise for investors. It allows us to reflect on whether the company has met or exceed expectations, which is a powerful signal for future performance. Below, I will assess SN.'s latest performance announced on 31 December 2019 and weight these figures against its longer term trend and industry movements.
Was SN.'s weak performance lately a part of a long-term decline?
SN.'s trailing twelve-month earnings (from 31 December 2019) of US$600m has declined by -9.5% 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 7.9%, indicating the rate at which SN. is growing has slowed down. What could be happening here? Well, let's look at what's transpiring with margins and if the whole 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 12% instead. Furthermore, its return on assets (ROA) of 7.0% is below the GB Medical Equipment industry of 8.2%, indicating Smith & Nephew's are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Smith & Nephew’s debt level, has declined over the past 3 years from 15% to 12%.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Usually companies that face an extended period of reduction in earnings are undergoing some sort of reinvestment phase Although, if the entire industry is struggling to grow over time, it may be a sign of a structural shift, which makes Smith & Nephew and its peers a higher risk investment. I suggest 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 2019. This may not be consistent with full year annual report figures.
If you spot an error that warrants correction, please contact the editor at email@example.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.
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