Assessing Street Capital Group Inc’s (TSE:SCB) past track record of performance is an insightful exercise for investors. It allows us to reflect on whether or not the company has met or exceed expectations, which is a great indicator for future performance. Today I will assess SCB’s recent performance announced on 31 March 2018 and evaluate these figures to its long-term trend and industry movements. View out our latest analysis for Street Capital Group
Was SCB’s recent earnings decline worse than the long-term trend and the industry?SCB’s trailing twelve-month earnings (from 31 March 2018) of CA$3.52m has more than halved from CA$15.76m in the prior year. Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of -17.72%, indicating the rate at which SCB is growing has slowed down. Why is this? Well, let’s take a look at what’s going on with margins and whether the whole industry is feeling the heat.
Although revenue growth over the last few years, has been negative, earnings growth has been deteriorating by even more, implying that Street Capital Group has been growing its expenses. This harms margins and earnings, and is not a sustainable practice. Viewing growth from a sector-level, the Canadian mortgage industry has been growing, albeit, at a muted single-digit rate of 3.45% in the past twelve months, and a substantial 14.48% over the previous five years. This suggests that whatever recent headwind the industry is experiencing, it’s hitting Street Capital Group harder than its peers.In terms of returns from investment, Street Capital Group has not invested its equity funds well, leading to a 2.21% return on equity (ROE), below the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 0.43% is below the CA Mortgage industry of 1.87%, indicating Street Capital Group’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Street Capital Group’s debt level, has declined over the past 3 years from 10.08% to 2.84%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 20.26% to 164.29% over the past 5 years.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Usually companies that experience a prolonged period of reduction in earnings are undergoing some sort of reinvestment phase However, if the whole industry is struggling to grow over time, it may be a signal of a structural shift, which makes Street Capital Group and its peers a higher risk investment. I suggest you continue to research Street Capital Group to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SCB’s future growth? Take a look at our free research report of analyst consensus for SCB’s outlook.
- Financial Health: Is SCB’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.