Does Union Bank of India's (NSE:UNIONBANK) Past Performance Indicate A Weaker Future?

After looking at Union Bank of India's (NSEI:UNIONBANK) latest earnings update (31 March 2017), I found it helpful to revisit the company's performance in the past couple of years and compare this against the latest numbers. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is an important aspect. In this article I briefly touch on my key findings. View our latest analysis for Union Bank of India

Was UNIONBANK's recent earnings decline indicative of a tough track record?

To account for any quarterly or half-yearly updates, I use the ‘latest twelve-month’ data, which annualizes the most recent half-year data, or in some cases, the latest annual report is already the most recent financial year data. This technique enables me to assess many different companies on a similar basis, using the most relevant data points. For Union Bank of India, its most recent earnings (trailing twelve month) is ₹5.73B, which, against the previous year's figure, has sunken by a non-trivial -57.78%. Since these values may be relatively myopic, I have created an annualized five-year value for Union Bank of India's earnings, which stands at ₹16.76B This doesn’t seem to paint a better picture, as earnings seem to have gradually been diminishing over time.

What could be happening here? Well, let's look at what's going on with margins and if the rest of the industry is facing the same headwind. Revenue growth over the past few years, has been positive, nevertheless earnings growth has been falling. This implies that Union Bank of India has been ramping up expenses, which is hurting margins and earnings, and is not a sustainable practice. Inspecting growth from a sector-level, the IN banks industry has been growing its average earnings by double-digit 10.02% over the past twelve months, and a flatter 0.55% over the past five years. This shows that whatever tailwind the industry is benefiting from, Union Bank of India has not been able to gain as much as its industry peers.

What does this mean?

Though Union Bank of India's past data is helpful, it is only one aspect of my investment thesis. Usually companies that endure an extended period of decline in earnings are going through some sort of reinvestment phase with the aim of keeping up with the latest industry growth and disruption. I suggest you continue to research Union Bank of India to get a better picture of the stock by looking at:

• 1. Future Outlook: What are well-informed industry analysts predicting for UNIONBANK’s future growth? Take a look at our free research report of analyst consensus for UNIONBANK’s outlook.
• 2. Financial Health: Is UNIONBANK’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 March 2017. This may not be consistent with full year annual report figures.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.