How Does Gati Limited's (NSE:GATI) Earnings Growth Stack Up Against Industry Performance?

For investors, increase in profitability and industry-beating performance can be essential considerations in an investment. Below, I will examine Gati Limited's (NSE:GATI) track record on a high level, to give you some insight into how the company has been performing against its long term trend and its industry peers.

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How GATI fared against its long-term earnings performance and its industry

GATI's trailing twelve-month earnings (from 31 March 2018) of ₹342.30m has jumped 15.97% compared to the previous year. Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 7.39%, indicating the rate at which GATI is growing has accelerated. How has it been able to do this? Let's take a look at whether it is only owing to industry tailwinds, or if Gati has seen some company-specific growth.

Over the past few years, Gati increased its bottom line faster than revenue by efficiently controlling its costs. This resulted in a margin expansion and profitability over time. Eyeballing growth from a sector-level, the IN logistics industry has been growing its average earnings by double-digit 27.50% over the prior twelve months, and a more muted 9.12% over the past five. This growth is a median of profitable companies of 17 Logistics companies in IN including Allcargo Logistics, Allcargo Logistics and Blue Dart Express. This shows that whatever uplift the industry is benefiting from, Gati has not been able to realize the gains unlike its average peer.

In terms of returns from investment, Gati has fallen short of achieving a 20% return on equity (ROE), recording 4.64% instead. Furthermore, its return on assets (ROA) of 5.53% is below the IN Logistics industry of 9.58%, indicating Gati's are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Gati’s debt level, has declined over the past 3 years from 8.14% to 2.30%.

What does this mean?

Gati's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. Recent positive growth doesn’t necessarily mean it’s onwards and upwards for the company. There may be variables that are influencing the entire industry thus the high industry growth rate over the same time period. I recommend you continue to research Gati to get a better picture of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for GATI’s future growth? Take a look at our free research report of analyst consensus for GATI’s outlook.
2. Financial Health: Are GATI’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 2018. This may not be consistent with full year annual report figures.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at 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.