How Has Electrocomponents plc’s (LON:ECM) Earnings Fared Against The Long Term Trend

After looking at Electrocomponents plc’s (LSE:ECM) latest earnings announcement (31 March 2019), I found it useful to revisit the company’s performance in the past couple of years and assess this against the most recent figures. As a long term investor, I pay close attention to earnings trend, rather than the figures published at one point in time. I also compare against an industry benchmark to check whether Electrocomponents’s performance has been impacted by industry movements. In this article I briefly touch on my key findings.

See our latest analysis for Electrocomponents

Commentary On ECM’s Past Performance

ECM’s trailing twelve-month earnings (from 31 March 2019) of UK£148m has declined by -1.0% 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 24%, indicating the rate at which ECM is growing has slowed down. Why could this be happening? Well, let’s take a look at what’s going on with margins and whether the rest of the industry is facing the same headwind.

LSE:ECM Income Statement, September 11th 2019
LSE:ECM Income Statement, September 11th 2019

In terms of returns from investment, Electrocomponents has invested its equity funds well leading to a 25% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 11% exceeds the GB Electronic industry of 6.7%, indicating Electrocomponents has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Electrocomponents’s debt level, has increased over the past 3 years from 12% to 22%.

What does this mean?

Though Electrocomponents’s past data is helpful, it is only one aspect of my investment thesis. Companies that are profitable, but have unpredictable earnings, can have many factors influencing its business. You should continue to research Electrocomponents to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for ECM’s future growth? Take a look at our free research report of analyst consensus for ECM’s outlook.
  2. Financial Health: Are ECM’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.
  3. 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 March 2019. This may not be consistent with full year annual report figures.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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. Thank you for reading.