How Morgan Stanley's (NYSE:MS) Earnings Growth Stacks Up Against The Industry

When Morgan Stanley (NYSE:MS) released its most recent earnings update (31 March 2018), I wanted to understand how these figures stacked up against its past performance. The two benchmarks I used were Morgan Stanley's average earnings over the past couple of years, and its industry performance. These are useful yardsticks to help me gauge whether or not MS actually performed well. Below is a quick commentary on how I see MS has performed. See our latest analysis for Morgan Stanley

Did MS's recent performance beat its trend and industry?

MS's trailing twelve-month earnings (from 31 March 2018) of US$6.32b has increased by 0.17% 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 23.51%, indicating the rate at which MS is growing has slowed down. Why could this be happening? Well, let's look at what's going on with margins and whether the whole industry is experiencing the hit as well.

Over the past couple of years, revenue growth has been lagging behind which indicates that Morgan Stanley’s bottom line has been propelled by unmaintainable cost-reductions. Looking at growth from a sector-level, the US capital markets industry has been growing its average earnings by double-digit 14.43% in the previous twelve months, and 12.90% over the past five years. This means that any uplift the industry is profiting from, Morgan Stanley has not been able to leverage it as much as its industry peers.

In terms of returns from investment, Morgan Stanley has not invested its equity funds well, leading to a 8.74% return on equity (ROE), below the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 0.74% is below the US Capital Markets industry of 4.64%, indicating Morgan Stanley's are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Morgan Stanley’s debt level, has declined over the past 3 years from 2.81% to 2.66%.

What does this mean?

Morgan Stanley's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. Companies that have performed well in the past, such as Morgan Stanley gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. I suggest you continue to research Morgan Stanley to get a more holistic view of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for MS’s future growth? Take a look at our free research report of analyst consensus for MS’s outlook.
2. Financial Health: Is MS’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 March 2018. This may not be consistent with full year annual report figures.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.