For long-term investors, assessing earnings trend over time and against industry benchmarks is more beneficial than examining a single earnings announcement at a point in time. Investors may find my commentary, albeit very high-level and brief, on Brembo S.p.A. (BIT:BRE) useful as an attempt to give more color around how Brembo is currently performing.
Was BRE's recent earnings decline indicative of a tough track record?
BRE's trailing twelve-month earnings (from 30 June 2019) of €228m 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 14%, indicating the rate at which BRE is growing has slowed down. Why could this be happening? Let's examine what's transpiring with margins and if the entire industry is facing the same headwind.
In terms of returns from investment, Brembo has fallen short of achieving a 20% return on equity (ROE), recording 18% instead. However, its return on assets (ROA) of 9.0% exceeds the IT Auto Components industry of 4.6%, indicating Brembo has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Brembo’s debt level, has declined over the past 3 years from 28% to 18%.
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 influencing its business. I suggest you continue to research Brembo to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for BRE’s future growth? Take a look at our free research report of analyst consensus for BRE’s outlook.
- Financial Health: Are BRE’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 2019. This may not be consistent with full year annual report figures.
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