Understanding how GEA Group Aktiengesellschaft (FRA:G1A) 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 GEA Group is doing by comparing its latest earnings with its long-term trend as well as the performance of its machinery industry peers.
Commentary On G1A’s Past PerformanceG1A’s trailing twelve-month earnings (from 30 June 2018) of €197.0m has declined by -23.4% 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 -1.0%, indicating the rate at which G1A is growing has slowed down. Why could this be happening? Let’s examine what’s going on with margins and if the whole industry is facing the same headwind.
In the past few years, GEA Group has, on average, delivered negative top- and bottom-line growth. As revenues dropped by more, expenses have been lowered in order to maintain margins – not the most sustainable operating activity. Viewing growth from a sector-level, the DE machinery industry has been growing its average earnings by double-digit 23.0% over the past year, and a more subdued 6.4% over the previous five years. This growth is a median of profitable companies of 25 Machinery companies in DE including Advanex, COSCO Shipping International (Singapore) and Darco Water Technologies. This means any tailwind the industry is profiting from, GEA Group has not been able to realize the gains unlike its average peer.In terms of returns from investment, GEA Group has fallen short of achieving a 20% return on equity (ROE), recording 8.2% instead. Furthermore, its return on assets (ROA) of 3.4% is below the DE Machinery industry of 5.7%, indicating GEA Group’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for GEA Group’s debt level, has declined over the past 3 years from 10.4% to 8.1%.
What does this mean?
GEA Group’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Generally companies that endure a prolonged period of reduction in earnings are going through some sort of reinvestment phase with the aim of keeping up with the latest industry expansion and disruption. I recommend you continue to research GEA Group to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for G1A’s future growth? Take a look at our free research report of analyst consensus for G1A’s outlook.
- Financial Health: Are G1A’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 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 firstname.lastname@example.org.