Does Spirax-Sarco Engineering plc's (LON:SPX) 27% Earnings Growth Make It An Outperformer?

When Spirax-Sarco Engineering plc (LON:SPX) announced its most recent earnings (30 June 2019), I did two things: looked at its past earnings track record, then look at what is happening in the industry. Understanding how Spirax-Sarco Engineering performed requires a benchmark rather than trying to assess a standalone number at one point in time. Below is a quick commentary on how I see SPX has performed.

View our latest analysis for Spirax-Sarco Engineering

Could SPX beat the long-term trend and outperform its industry?

SPX's trailing twelve-month earnings (from 30 June 2019) of UK£221m has jumped 27% compared to the previous year.

Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 20%, indicating the rate at which SPX is growing has accelerated. What's enabled this growth? Let's take a look at if it is only due to industry tailwinds, or if Spirax-Sarco Engineering has experienced some company-specific growth.

In terms of returns from investment, Spirax-Sarco Engineering has invested its equity funds well leading to a 28% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 13% exceeds the GB Machinery industry of 6.6%, indicating Spirax-Sarco Engineering has used its assets more efficiently. However, its return on capital (ROC), which also accounts for Spirax-Sarco Engineering’s debt level, has declined over the past 3 years from 25% to 21%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 27% to 72% over the past 5 years.

What does this mean?

While past data is useful, it doesn’t tell the whole story. While Spirax-Sarco Engineering has a good historical track record with positive growth and profitability, there's no certainty that this will extrapolate into the future. You should continue to research Spirax-Sarco Engineering to get a more holistic view of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for SPX’s future growth? Take a look at our free research report of analyst consensus for SPX’s outlook.
2. Financial Health: Are SPX’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 June 2019. 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.