Does GBST Holdings Limited’s (ASX:GBT) -11% Earnings Drop Reflect A Longer Term Trend?

Understanding how GBST Holdings Limited (ASX:GBT) is performing as a company requires looking at more than just a years’ earnings. Today I will run you through a basic sense check to gain perspective on how GBST Holdings is doing by comparing its latest earnings with its long-term trend as well as the performance of its it industry peers.

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Despite a decline, did GBT underperform the long-term trend and the industry?

GBT’s trailing twelve-month earnings (from 30 June 2018) of AU$6.2m has declined by -11% 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 -6.3%, indicating the rate at which GBT is growing has slowed down. Why is this? Let’s examine what’s occurring with margins and if the whole industry is facing the same headwind.

ASX:GBT Income Statement Export January 17th 19
ASX:GBT Income Statement Export January 17th 19

In terms of returns from investment, GBST Holdings has fallen short of achieving a 20% return on equity (ROE), recording 9.1% instead. However, its return on assets (ROA) of 6.0% exceeds the AU IT industry of 4.9%, indicating GBST Holdings has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for GBST Holdings’s debt level, has declined over the past 3 years from 23% to 10%.

What does this mean?

While past data is useful, it doesn’t tell the whole story. Typically companies that endure a prolonged period of diminishing earnings are going through some sort of reinvestment phase with the aim of keeping up with the latest industry growth and disruption. I suggest you continue to research GBST Holdings to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for GBT’s future growth? Take a look at our free research report of analyst consensus for GBT’s outlook.
  2. Financial Health: Are GBT’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 30 June 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 editorial-team@simplywallst.com.