Where Supply Network Limited's (ASX:SNL) Earnings Growth Stands Against Its Industry

Improvement in profitability and outperformance against the industry can be important characteristics in a stock for some investors. Below, I will assess Supply Network Limited's (ASX:SNL) track record on a high level, to give you some insight into how the company has been performing against its historical trend and its industry peers.

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How Did SNL's Recent Performance Stack Up Against Its Past?

SNL's trailing twelve-month earnings (from 31 December 2017) of AU$7.59m has jumped 38.58% compared to the previous year. Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 9.81%, indicating the rate at which SNL is growing has accelerated. What's enabled this growth? Well, let’s take a look at if it is merely owing to industry tailwinds, or if Supply Network has seen some company-specific growth.

Over the last couple of years, Supply Network increased its bottom line faster than revenue by successfully controlling its costs. This resulted in a margin expansion and profitability over time. Looking at growth from a sector-level, the Australian retail distributors industry has been growing its average earnings by double-digit 25.23% in the previous year, and a more subdued 4.58% over the past five. This growth is a median of profitable companies of stocks internationally, operating in the Retail Distributors industry. I’ve decided to use a global peer group as there’s not enough companies in AU that are considered as appropriate peers, and I wanted to get a broader perspective on the regional growth. Some peers include National Tyre & Wheel, Bapcor and Ruralco Holdings. This means that any tailwind the industry is benefiting from, Supply Network is capable of amplifying this to its advantage.

In terms of returns from investment, Supply Network has invested its equity funds well leading to a 23.30% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 13.79% exceeds the AU Retail Distributors industry of 3.89%, indicating Supply Network has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Supply Network’s debt level, has increased over the past 3 years from 28.31% to 29.50%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 17.30% to 9.97% over the past 5 years.

What does this mean?

While past data is useful, it doesn’t tell the whole story. Companies that have performed well in the past, such as Supply Network gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. You should continue to research Supply Network to get a better picture of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for SNL’s future growth? Take a look at our free research report of analyst consensus for SNL’s outlook.
2. Financial Health: Is SNL’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.

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.