Should You Be Concerned With Northgate plc’s (LON:NTG) -19% Earnings Drop?

In this article, I will take a look at Northgate plc’s (LON:NTG) most recent earnings update (31 October 2018) and compare these latest figures against its performance over the past few years, along with how the rest of NTG’s industry performed. As a long-term investor, I find it useful to analyze the company’s trend over time in order to estimate whether or not the company is able to meet its goals, and eventually grow sustainably over time.

Check out our latest analysis for Northgate

How Well Did NTG Perform?

NTG’s trailing twelve-month earnings (from 31 October 2018) of UK£42m has declined by -19% 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 6.3%, indicating the rate at which NTG is growing has slowed down. Why is this? Well, let’s look at what’s transpiring with margins and whether the rest of the industry is facing the same headwind.

LSE:NTG Income Statement, April 7th 2019
LSE:NTG Income Statement, April 7th 2019

In terms of returns from investment, Northgate has fallen short of achieving a 20% return on equity (ROE), recording 7.7% instead. Furthermore, its return on assets (ROA) of 4.7% is below the GB Transportation industry of 5.4%, indicating Northgate’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Northgate’s debt level, has declined over the past 3 years from 12% to 6.2%.

What does this mean?

Northgate’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Typically companies that experience a drawn out period of decline in earnings are undergoing some sort of reinvestment phase in order to keep up with the recent industry disruption and expansion. I recommend you continue to research Northgate to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for NTG’s future growth? Take a look at our free research report of analyst consensus for NTG’s outlook.
  2. Financial Health: Are NTG’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 31 October 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.