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In this commentary, I will examine ELGI Equipments Limited’s (NSE:ELGIEQUIP) latest earnings update (31 March 2019) and compare these figures against its performance over the past couple of years, as well as how the rest of the machinery industry performed. As an investor, I find it beneficial to assess ELGIEQUIP’s trend over the short-to-medium term in order to gauge whether or not the company is able to meet its goals, and ultimately sustainably grow over time.
Did ELGIEQUIP beat its long-term earnings growth trend and its industry?
ELGIEQUIP’s trailing twelve-month earnings (from 31 March 2019) of ₹1.0b has increased by 8.2% 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 19%, indicating the rate at which ELGIEQUIP is growing has slowed down. To understand what’s happening, let’s take a look at what’s going on with margins and if the rest of the industry is feeling the heat.
In terms of returns from investment, ELGI Equipments has fallen short of achieving a 20% return on equity (ROE), recording 13% instead. However, its return on assets (ROA) of 8.1% exceeds the IN Machinery industry of 7.7%, indicating ELGI Equipments has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for ELGI Equipments’s debt level, has increased over the past 3 years from 13% to 16%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 73% to 25% over the past 5 years.
What does this mean?
While past data is useful, it doesn’t tell the whole story. While ELGI Equipments 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 ELGI Equipments to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ELGIEQUIP’s future growth? Take a look at our free research report of analyst consensus for ELGIEQUIP’s outlook.
- Financial Health: Are ELGIEQUIP’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 March 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 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.