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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 NZX Limited (NZSE:NZX) useful as an attempt to give more color around how NZX is currently performing.
Was NZX’s recent earnings decline worse than the long-term trend and the industry?
NZX’s trailing twelve-month earnings (from 31 December 2018) of NZ$14m has declined by -4.9% 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 -3.1%, indicating the rate at which NZX is growing has slowed down. What could be happening here? Well, let’s look at what’s occurring with margins and whether the whole industry is experiencing the hit as well.
In terms of returns from investment, NZX has invested its equity funds well leading to a 21% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 8.0% exceeds the NZ Capital Markets industry of 7.2%, indicating NZX has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for NZX’s debt level, has increased over the past 3 years from 19% to 20%.
What does this mean?
NZX’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Typically companies that face an extended period of diminishing earnings are going through some sort of reinvestment phase Though if the entire industry is struggling to grow over time, it may be a signal of a structural shift, which makes NZX and its peers a riskier investment. I recommend you continue to research NZX to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for NZX’s future growth? Take a look at our free research report of analyst consensus for NZX’s outlook.
- Financial Health: Are NZX’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.
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 firstname.lastname@example.org. 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.