After reading Lovisa Holdings Limited’s (ASX:LOV) most recent earnings announcement (31 December 2017), I found it useful to look back at how the company has performed in the past and compare this against the latest numbers. 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 Lovisa Holdings’s performance has been impacted by industry movements. In this article I briefly touch on my key findings. View our latest analysis for Lovisa Holdings
Could LOV beat the long-term trend and outperform its industry?
I look at data from the most recent 12 months, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This allows me to analyze different companies in a uniform manner using the latest information. For Lovisa Holdings, its most recent earnings (trailing twelve month) is AU$33.62M, which, against the prior year’s level, has increased by 44.60%. Since these values are somewhat nearsighted, I have computed an annualized five-year figure for Lovisa Holdings’s net income, which stands at AU$18.29M This shows that, generally, Lovisa Holdings has been able to gradually grow its earnings over the past few years as well.What’s the driver of this growth? Let’s take a look at if it is merely because of an industry uplift, or if Lovisa Holdings has experienced some company-specific growth. Over the last few years, Lovisa Holdings expanded its bottom line faster than revenue by efficiently controlling its costs. This brought about a margin expansion and profitability over time. Viewing growth from a sector-level, the Australian specialty retail industry has been growing, albeit, at a muted single-digit rate of 8.34% over the prior twelve months, and a substantial 16.37% over the last five years. This means that whatever uplift the industry is benefiting from, Lovisa Holdings is capable of leveraging this to its advantage.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? I recommend you continue to research Lovisa Holdings to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for LOV’s future growth? Take a look at our free research report of analyst consensus for LOV’s outlook.
- Financial Health: Is LOV’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.