Understanding how Equifax Inc (NYSE:EFX) is performing as a company requires looking at more than just a years’ earnings. Today I will run you through a basic sense check to gain perspective on how Equifax is doing by comparing its latest earnings with its long-term trend as well as the performance of its professional services industry peers. See our latest analysis for Equifax
Was EFX’s weak performance lately a part of a long-term decline?EFX’s trailing twelve-month earnings (from 31 March 2018) of US$524.90m has declined by -2.80% 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 14.18%, indicating the rate at which EFX is growing has slowed down. What could be happening here? Well, let’s look at what’s transpiring with margins and whether the rest of the industry is feeling the heat.
Over the past few years, revenue growth has not been able to catch up, which suggests that Equifax’s bottom line has been driven by unsustainable cost-reductions. Looking at growth from a sector-level, the US professional services industry has been growing its average earnings by double-digit 17.05% in the past twelve months, and 10.91% over the past five years. This means that any uplift the industry is profiting from, Equifax has not been able to reap as much as its average peer.In terms of returns from investment, Equifax has not invested its equity funds well, leading to a 16.08% return on equity (ROE), below the sensible minimum of 20%. However, its return on assets (ROA) of 8.58% exceeds the US Professional Services industry of 8.26%, indicating Equifax has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Equifax’s debt level, has declined over the past 3 years from 15.98% to 11.92%.
What does this mean?
Though Equifax’s past data is helpful, it is only one aspect of my investment thesis. Companies that are profitable, but have volatile earnings, can have many factors influencing its business. I suggest you continue to research Equifax to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for EFX’s future growth? Take a look at our free research report of analyst consensus for EFX’s outlook.
- Financial Health: Is EFX’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.