Today I will take a look at Legrand SA’s (EPA:LR) most recent earnings update (30 June 2019) and compare these latest figures against its performance over the past few years, as well as how the rest of the electrical industry performed. As an investor, I find it beneficial to assess LR’s trend over the short-to-medium term in order to gauge whether or not the company is able to meet its goals, and ultimately sustainably grow over time.
How Well Did LR Perform?
LR’s trailing twelve-month earnings (from 30 June 2019) of €797m has increased by 1.5% compared to the previous year.
However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 10%, indicating the rate at which LR is growing has slowed down. To understand what’s happening, let’s take a look at what’s transpiring with margins and whether the entire industry is feeling the heat.
In terms of returns from investment, Legrand has fallen short of achieving a 20% return on equity (ROE), recording 17% instead. However, its return on assets (ROA) of 7.7% exceeds the FR Electrical industry of 5.9%, indicating Legrand has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Legrand’s debt level, has declined over the past 3 years from 15% to 13%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 56% to 83% over the past 5 years.
What does this mean?
Legrand’s track record can be a valuable insight into its earnings performance, but it certainly 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? You should continue to research Legrand to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for LR’s future growth? Take a look at our free research report of analyst consensus for LR’s outlook.
- Financial Health: Are LR’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 2019. This may not be consistent with full year annual report figures.
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