Avon Rubber p.l.c. (LON:AVON): Does The -9.2% Earnings Drop Reflect A Longer Term Trend?

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After looking at Avon Rubber p.l.c.’s (LON:AVON) latest earnings announcement (30 September 2018), I found it useful to revisit the company’s performance in the past couple of years and assess this against the most recent figures. As a long term investor, I pay close attention to earnings trend, rather than the figures published at one point in time. I also compare against an industry benchmark to check whether Avon Rubber’s performance has been impacted by industry movements. In this article I briefly touch on my key findings.

Check out our latest analysis for Avon Rubber

Commentary On AVON’s Past Performance

AVON’s trailing twelve-month earnings (from 30 September 2018) of UK£20m has declined by -9.2% 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 18%, indicating the rate at which AVON is growing has slowed down. Why is this? Let’s examine what’s occurring with margins and whether the whole industry is feeling the heat.

LSE:AVON Income Statement, February 22nd 2019
LSE:AVON Income Statement, February 22nd 2019

In terms of returns from investment, Avon Rubber has invested its equity funds well leading to a 23% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 12% exceeds the GB Aerospace & Defense industry of 6.9%, indicating Avon Rubber has used its assets more efficiently. However, its return on capital (ROC), which also accounts for Avon Rubber’s debt level, has declined over the past 3 years from 23% to 18%.

What does this mean?

While past data is useful, it doesn’t tell the whole story. Companies that are profitable, but have capricious earnings, can have many factors impacting its business. I recommend you continue to research Avon Rubber to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for AVON’s future growth? Take a look at our free research report of analyst consensus for AVON’s outlook.
  2. Financial Health: Are AVON’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.
  3. 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 September 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 editorial-team@simplywallst.com. 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.