Improvement in profitability and outperformance against the industry can be important characteristics in a stock for some investors. Below, I will assess The Colonial Motor Company Limited’s (NZSE:CMO) track record on a high level, to give you some insight into how the company has been performing against its historical trend and its industry peers.
Was CMO weak performance lately part of a long-term decline?
CMO’s trailing twelve-month earnings (from 30 June 2019) of NZ$22m has declined by -12% 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 6.0%, indicating the rate at which CMO is growing has slowed down. Why could this be happening? Well, let’s look at what’s transpiring with margins and whether the entire industry is feeling the heat.
In terms of returns from investment, Colonial Motor has fallen short of achieving a 20% return on equity (ROE), recording 11% instead. Furthermore, its return on assets (ROA) of 6.9% is below the NZ Specialty Retail industry of 8.5%, indicating Colonial Motor’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Colonial Motor’s debt level, has declined over the past 3 years from 19% to 18%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 39% to 58% over the past 5 years.
What does this mean?
Colonial Motor’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Companies that are profitable, but have capricious earnings, can have many factors influencing its business. I recommend you continue to research Colonial Motor to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CMO’s future growth? Take a look at our free research report of analyst consensus for CMO’s outlook.
- Financial Health: Are CMO’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 30 June 2019. This may not be consistent with full year annual report figures.
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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.