For long term investors, improvement in profitability and outperformance against the industry can be important characteristics in a stock. In this article, I will take a look at Renk Aktiengesellschaft’s (FRA:ZAR) 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.
Commentary On ZAR’s Past Performance
ZAR’s trailing twelve-month earnings (from 31 December 2018) of €43m has declined by -0.7% 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 -3.3%, indicating the rate at which ZAR is growing has slowed down. Why could this be happening? Let’s examine what’s going on with margins and whether the entire industry is experiencing the hit as well.
In terms of returns from investment, Renk has fallen short of achieving a 20% return on equity (ROE), recording 9.4% instead. However, its return on assets (ROA) of 5.4% exceeds the DE Auto Components industry of 5.1%, indicating Renk has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Renk’s debt level, has declined over the past 3 years from 15% to 11%.
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 sign of a structural shift, which makes Renk and its peers a riskier investment. You should continue to research Renk to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ZAR’s future growth? Take a look at our free research report of analyst consensus for ZAR’s outlook.
- Financial Health: Are ZAR’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.
NB: Figures in this article are calculated using data from the trailing twelve months from 31 December 2018. This may not be consistent with full year annual report figures.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.