In this commentary, I will examine Silver Chef Limited’s (ASX:SIV) latest earnings update (31 December 2017) and compare these figures against its performance over the past couple of years, as well as how the rest of the trade distributors industry performed. As an investor, I find it beneficial to assess SIV’s trend over the short-to-medium term in order to gauge whether or not the company is able to meet its goals, and ultimately sustainably grow over time.
How Well Did SIV Perform?SIV’s trailing twelve-month earnings (from 31 December 2017) of AU$2.61m has more than halved from AU$22.36m in the prior year. Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 10.29%, indicating the rate at which SIV is growing has slowed down. What could be happening here? Let’s examine what’s going on with margins and if the entire industry is feeling the heat.
Revenue growth in the last few years, has been positive, however, earnings growth has fallen behind meaning Silver Chef has been increasing its expenses by a lot more. This harms margins and earnings, and is not a sustainable practice. Inspecting growth from a sector-level, the Australian trade distributors industry has been growing its average earnings by double-digit 48.01% over the past twelve months, and 11.52% over the past half a decade. This growth is a median of profitable companies of 5 Trade Distributors companies in AU including HGL, Reece and Legend. This suggests that whatever uplift the industry is benefiting from, Silver Chef has not been able to leverage it as much as its average peer.In terms of returns from investment, Silver Chef has not invested its equity funds well, leading to a 1.82% return on equity (ROE), below the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 2.97% is below the AU Trade Distributors industry of 6.92%, indicating Silver Chef’s are utilized less efficiently. However, its return on capital (ROC), which also accounts for Silver Chef’s debt level, has increased over the past 3 years from 15.53% to 21.46%.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Typically companies that experience a drawn out period of decline in earnings are undergoing some sort of reinvestment phase in order to keep up with the recent industry expansion and disruption. I recommend you continue to research Silver Chef to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SIV’s future growth? Take a look at our free research report of analyst consensus for SIV’s outlook.
- Financial Health: Is SIV’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.
To help readers see pass 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 firstname.lastname@example.org.