After reading Canadian Pacific Railway Limited’s (TSE:CP) latest earnings update (31 March 2018), I found it beneficial to look back at how the company has performed in the past and compare this against the most recent numbers. As a long-term investor I tend to pay attention to earnings trend, rather than a single number at one point in time. I also like to compare against an industry benchmark to understand whether CP has outperformed, or whether it is simply riding an industry wave. Below is a brief commentary on my key takeaways. View out our latest analysis for Canadian Pacific Railway
How Well Did CP Perform?CP’s trailing twelve-month earnings (from 31 March 2018) of CA$2.32b has jumped 55.84% compared to the previous year. Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 20.89%, indicating the rate at which CP is growing has accelerated. How has it been able to do this? Well, let’s take a look at if it is solely a result of industry tailwinds, or if Canadian Pacific Railway has seen some company-specific growth.
In the last few years, Canadian Pacific Railway grew its bottom line faster than revenue by efficiently controlling its costs. This has led to a margin expansion and profitability over time. Looking at growth from a sector-level, the Canadian transportation industry has been growing its average earnings by double-digit 43.11% in the prior twelve months, and 11.48% over the previous five years. This growth is a median of profitable companies of 3 Transportation companies in CA including TFI International, Canadian National Railway and Student Transportation. This suggests that any uplift the industry is deriving benefit from, Canadian Pacific Railway is capable of amplifying this to its advantage.In terms of returns from investment, Canadian Pacific Railway has invested its equity funds well leading to a 36.09% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 13.75% exceeds the CA Transportation industry of 10.39%, indicating Canadian Pacific Railway has used its assets more efficiently. However, its return on capital (ROC), which also accounts for Canadian Pacific Railway’s debt level, has declined over the past 3 years from 13.32% to 12.67%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 87.04% to 130.45% over the past 5 years.
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 Canadian Pacific Railway to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CP’s future growth? Take a look at our free research report of analyst consensus for CP’s outlook.
- Financial Health: Is CP’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.