Was Graham Holdings Company's (NYSE:GHC) Earnings Decline Part Of A Broader Industry Downturn?

Measuring Graham Holdings Company's (NYSE:GHC) track record of past performance is a useful exercise for investors. It enables us to understand whether or not the company has met or exceed expectations, which is an insightful signal for future performance. Today I will assess GHC's recent performance announced on 31 December 2018 and weigh these figures against its long-term trend and industry movements.

View our latest analysis for Graham Holdings

Despite a decline, did GHC underperform the long-term trend and the industry?

GHC's trailing twelve-month earnings (from 31 December 2018) of US$270m has declined by -9.9% 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 -8.4%, indicating the rate at which GHC is growing has slowed down. Why could this be happening? Well, let’s take a look at what’s occurring with margins and whether the entire industry is experiencing the hit as well.

In terms of returns from investment, Graham Holdings has fallen short of achieving a 20% return on equity (ROE), recording 9.3% instead. However, its return on assets (ROA) of 6.3% exceeds the US Consumer Services industry of 5.4%, indicating Graham Holdings has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Graham Holdings’s debt level, has increased over the past 3 years from 5.5% to 9.5%.

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 affecting its business. I recommend you continue to research Graham Holdings to get a more holistic view of the stock by looking at:

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