For long-term investors, assessing earnings trend over time and against industry benchmarks is more beneficial than examining a single earnings announcement at a point in time. Investors may find my commentary, albeit very high-level and brief, on RSA Insurance Group plc (LON:RSA) useful as an attempt to give more color around how RSA Insurance Group is currently performing.
Did RSA beat its long-term earnings growth trend and its industry?
RSA’s trailing twelve-month earnings (from 31 December 2018) of UK£326m has jumped 21% 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 71%, indicating the rate at which RSA is growing has slowed down. Why could this be happening? Well, let’s take a look at what’s occurring with margins and if the rest of the industry is experiencing the hit as well.
In terms of returns from investment, RSA Insurance Group has fallen short of achieving a 20% return on equity (ROE), recording 8.8% instead. However, its return on assets (ROA) of 1.7% exceeds the GB Insurance industry of 1.5%, indicating RSA Insurance Group has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for RSA Insurance Group’s debt level, has increased over the past 3 years from 3.0% to 3.5%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 53% to 13% over the past 5 years.
What does this mean?
Though RSA Insurance Group’s past data is helpful, it is only one aspect of my investment thesis. Companies that have performed well in the past, such as RSA Insurance Group gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. I recommend you continue to research RSA Insurance Group to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for RSA’s future growth? Take a look at our free research report of analyst consensus for RSA’s outlook.
- Financial Health: Are RSA’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.
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If you spot an error that warrants correction, please contact the editor at email@example.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.