When Kathmandu Holdings Limited (NZSE:KMD) released its most recent earnings update (31 July 2019), I wanted to understand how these figures stacked up against its past performance. The two benchmarks I used were Kathmandu Holdings’s average earnings over the past couple of years, and its industry performance. These are useful yardsticks to help me gauge whether or not KMD actually performed well. Below is a quick commentary on how I see KMD has performed.
How KMD fared against its long-term earnings performance and its industry
KMD’s trailing twelve-month earnings (from 31 July 2019) of NZ$58m has jumped 14% 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 14%, indicating the rate at which KMD is growing has slowed down. What could be happening here? Well, let’s examine what’s occurring with margins and if the rest of the industry is facing the same headwind.
In terms of returns from investment, Kathmandu Holdings has fallen short of achieving a 20% return on equity (ROE), recording 13% instead. However, its return on assets (ROA) of 10% exceeds the NZ Specialty Retail industry of 9.0%, indicating Kathmandu Holdings has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Kathmandu Holdings’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 21% to 5.8% over the past 5 years.
What does this mean?
Though Kathmandu Holdings’s past data is helpful, it is only one aspect of my investment thesis. While Kathmandu Holdings has a good historical track record with positive growth and profitability, there’s no certainty that this will extrapolate into the future. I recommend you continue to research Kathmandu Holdings to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for KMD’s future growth? Take a look at our free research report of analyst consensus for KMD’s outlook.
- Financial Health: Are KMD’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 July 2019. This may not be consistent with full year annual report figures.
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