Should Scales Corporation Limited’s (NZSE:SCL) Recent Earnings Decline Worry You?

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 Scales Corporation Limited (NZSE:SCL) useful as an attempt to give more color around how Scales is currently performing.

View our latest analysis for Scales

How Did SCL’s Recent Performance Stack Up Against Its Past?

SCL’s trailing twelve-month earnings (from 31 December 2018) of NZ$29m has declined by -8.7% 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 10%, indicating the rate at which SCL is growing has slowed down. Why could this be happening? Let’s examine what’s occurring with margins and whether the rest of the industry is facing the same headwind.

NZSE:SCL Income Statement, March 1st 2019
NZSE:SCL Income Statement, March 1st 2019

In terms of returns from investment, Scales has fallen short of achieving a 20% return on equity (ROE), recording 12% instead. However, its return on assets (ROA) of 7.6% exceeds the NZ Food industry of 7.2%, indicating Scales has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Scales’s debt level, has declined over the past 3 years from 23% to 12%.

What does this mean?

While past data is useful, it doesn’t tell the whole story. Companies that are profitable, but have unpredictable earnings, can have many factors influencing its business. I recommend you continue to research Scales to get a better picture of the stock by looking at:

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