Yahoo Finance Was Wipro Limited’s (NSE:WIPRO) Earnings Decline Part Of A Broader Industry Downturn?
In this article, I will take a look at Wipro Limited’s (NSE:WIPRO) most recent earnings update (31 March 2018) and compare these latest figures against its performance over the past few years, along with how the rest of WIPRO’s industry performed. As a long-term investor, I find it useful to analyze the company’s trend over time in order to estimate whether or not the company is able to meet its goals, and eventually grow sustainably over time. View out our latest analysis for Wipro
Was WIPRO’s recent earnings decline worse than the long-term trend and the industry?
WIPRO’s trailing twelve-month earnings (from 31 March 2018) of ₹80.08b has declined by -5.67% 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 8.00%, indicating the rate at which WIPRO is growing has slowed down. Why could this be happening? Let’s examine what’s going on with margins and whether the rest of the industry is feeling the heat.
Revenue growth over the last couple of years, has been positive, however, earnings growth has fallen behind meaning Wipro has been growing its expenses by a lot more. This hurts margins and earnings, and is not a sustainable practice. Viewing growth from a sector-level, the IN it industry has been growing, albeit, at a unexciting single-digit rate of 7.46% in the prior year, and a substantial 12.23% over the past five years. This means whatever tailwind the industry is profiting from, Wipro has not been able to reap as much as its average peer.
In terms of returns from investment, Wipro has not invested its equity funds well, leading to a 16.50% return on equity (ROE), below the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 8.56% is below the IN IT industry of 8.69%, indicating Wipro’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Wipro’s debt level, has declined over the past 3 years from 24.73% to 18.67%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 22.34% to 28.49% 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 capricious earnings, can have many factors influencing its business. I suggest you continue to research Wipro to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for WIPRO’s future growth? Take a look at our free research report of analyst consensus for WIPRO’s outlook.
Financial Health: Is WIPRO’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 31 March 2018. This may not be consistent with full year annual report figures.
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.
