When Public Joint Stock Company Magnit (MCX:MGNT) released its most recent earnings update (31 December 2017), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Understanding how Magnit performed requires a benchmark rather than trying to assess a standalone number at one point in time. Below is a quick commentary on how I see MGNT has performed.
Did MGNT perform worse than its track record and industry?MGNT’s trailing twelve-month earnings (from 31 December 2017) of US$609.04m has declined by -24.96% 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 3.57%, indicating the rate at which MGNT is growing has slowed down. What could be happening here? Let’s examine what’s occurring with margins and if the whole industry is facing the same headwind.
Revenue growth over the last couple of years, has been positive, however, earnings growth has not been able to catch up, meaning Magnit has been ramping up its expenses by a lot more. This harms margins and earnings, and is not a sustainable practice. Inspecting growth from a sector-level, the RU consumer retailing industry has been growing its average earnings by double-digit 12.02% in the previous twelve months, and a less exciting 5.34% over the past five years. Since the Consumer Retailing sector in RU is relatively small, I’ve included similar companies in the wider region in order to get a better idea of the growth, which is a median of profitable companies of companies such as X5 Retail Group, Lenta and . This shows that any uplift the industry is deriving benefit from, Magnit has not been able to realize the gains unlike its industry peers.In terms of returns from investment, Magnit has not invested its equity funds well, leading to a 13.53% return on equity (ROE), below the sensible minimum of 20%. However, its return on assets (ROA) of 9.04% exceeds the RU Consumer Retailing industry of 5.40%, indicating Magnit has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Magnit’s debt level, has declined over the past 3 years from 45.66% to 12.18%.
What does this mean?
Magnit’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Generally companies that experience an extended period of diminishing earnings are going through some sort of reinvestment phase with the aim of keeping up with the latest industry growth and disruption. I suggest you continue to research Magnit to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MGNT’s future growth? Take a look at our free research report of analyst consensus for MGNT’s outlook.
- Financial Health: Is MGNT’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.
To help readers see pass 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 email@example.com.