How Navitas Limited’s (ASX:NVT) Earnings Growth Stacks Up Against The Industry

Measuring Navitas Limited’s (ASX:NVT) track record of past performance is a useful exercise for investors. It enables us to understand whether or not the company has met or exceed expectations, which is an insightful signal for future performance. Today I will assess NVT’s recent performance announced on 31 December 2017 and weigh these figures against its long-term trend and industry movements.

See our latest analysis for Navitas

Did NVT perform worse than its track record and industry?

NVT’s trailing twelve-month earnings (from 31 December 2017) of AU$51.76m has declined by -47.34% 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 1.24%, indicating the rate at which NVT is growing has slowed down. What could be happening here? Well, let’s take a look at what’s going on with margins and if the whole industry is experiencing the hit as well.

Revenue growth in the past couple of years, has been positive, however, earnings growth has fallen behind meaning Navitas has been increasing its expenses by a lot more. This harms margins and earnings, and is not a sustainable practice. Eyeballing growth from a sector-level, the Australian consumer services industry has been growing its average earnings by double-digit 10.12% over the past twelve months, and 16.46% over the past five. This growth is a median of profitable companies of 9 Consumer Services companies in AU including iSelect, Kip McGrath Education Centres and G8 Education. This suggests that whatever tailwind the industry is deriving benefit from, Navitas has not been able to reap as much as its industry peers.

ASX:NVT Income Statement Export August 4th 18
ASX:NVT Income Statement Export August 4th 18
In terms of returns from investment, Navitas has invested its equity funds well leading to a 36.26% return on equity (ROE), above the sensible minimum of 20%. However, its return on assets (ROA) of 7.16% is below the AU Consumer Services industry of 7.84%, indicating Navitas’s are utilized less efficiently. Furthermore, its return on capital (ROC), which also accounts for Navitas’s debt level, has declined over the past 3 years from 31.31% to 21.79%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 77.55% to 190.06% over the past 5 years.

What does this mean?

Though Navitas’s past data is helpful, it is only one aspect of my investment thesis. Generally companies that experience a prolonged period of diminishing earnings are undergoing some sort of reinvestment phase in order to keep up with the recent industry growth and disruption. You should continue to research Navitas to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for NVT’s future growth? Take a look at our free research report of analyst consensus for NVT’s outlook.
  2. Financial Health: Is NVT’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 December 2017. This may not be consistent with full year annual report figures.

To help readers see past 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 editorial-team@simplywallst.com.