Investors with a long-term horizong may find it valuable to assess Vector Limited’s (NZSE:VCT) earnings trend over time and against its industry benchmark as opposed to simply looking at a sincle earnings announcement at one point in time. Below is my commentary, albiet very simple and high-level, on how Vector is currently performing.
Despite a decline, did VCT underperform the long-term trend and the industry?
VCT’s trailing twelve-month earnings (from 30 June 2018) of NZ$148m has declined by -11% 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 -7.7%, indicating the rate at which VCT is growing has slowed down. Why is this? Let’s examine what’s transpiring with margins and whether the entire industry is experiencing the hit as well.
In terms of returns from investment, Vector has fallen short of achieving a 20% return on equity (ROE), recording 6.1% instead. However, its return on assets (ROA) of 4.8% exceeds the NZ Integrated Utilities industry of 4.2%, indicating Vector has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Vector’s debt level, has increased over the past 3 years from 2.3% to 3.6%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 113% to 97% over the past 5 years.
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 influencing its business. You should continue to research Vector to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for VCT’s future growth? Take a look at our free research report of analyst consensus for VCT’s outlook.
- Financial Health: Are VCT’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 30 June 2018. This may not be consistent with full year annual report figures.
To help readers see past 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 firstname.lastname@example.org.