For investors, increase in profitability and industry-beating performance can be essential considerations in an investment. Below, I will examine Australian Pharmaceutical Industries Limited’s (ASX:API) track record on a high level, to give you some insight into how the company has been performing against its long term trend and its industry peers.
Was API’s recent earnings decline worse than the long-term trend and the industry?API’s trailing twelve-month earnings (from 28 February 2018) of AU$48.17m has declined by -16.81% 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 22.18%, indicating the rate at which API is growing has slowed down. Why is this? Let’s examine what’s transpiring with margins and if the whole industry is experiencing the hit as well.
In the last few years, revenue growth has fallen behind which suggests that Australian Pharmaceutical Industries’s bottom line has been propelled by unmaintainable cost-reductions. Scanning growth from a sector-level, the Australian healthcare industry has been relatively flat in terms of earnings growth in the past year, evening out from a robust 22.33% over the previous five years. This growth is a median of profitable companies of 22 Healthcare companies in AU including Konekt, Pacific Smiles Group and Apiam Animal Health. This suggests that any recent headwind the industry is experiencing, it’s hitting Australian Pharmaceutical Industries harder than its peers.In terms of returns from investment, Australian Pharmaceutical Industries has fallen short of achieving a 20% return on equity (ROE), recording 8.57% instead. Furthermore, its return on assets (ROA) of 3.78% is below the AU Healthcare industry of 6.13%, indicating Australian Pharmaceutical Industries’s are utilized less efficiently. However, its return on capital (ROC), which also accounts for Australian Pharmaceutical Industries’s debt level, has increased over the past 3 years from 9.47% to 11.16%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 24.00% to 9.27% over the past 5 years.
What does this mean?
Though Australian Pharmaceutical Industries’s past data is helpful, it is only one aspect of my investment thesis. Companies that are profitable, but have volatile earnings, can have many factors affecting its business. I suggest you continue to research Australian Pharmaceutical Industries to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for API’s future growth? Take a look at our free research report of analyst consensus for API’s outlook.
- Financial Health: Are API’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 28 February 2018. 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 email@example.com.