When Synlait Milk Limited (NZSE:SML) announced its most recent earnings (31 July 2019), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Being able to interpret how well Synlait Milk has done so far requires weighing its performance against a benchmark, rather than looking at a standalone number at a point in time. In this article, I've summarized the key takeaways on how I see SML has performed.
Did SML's recent earnings growth beat the long-term trend and the industry?
SML's trailing twelve-month earnings (from 31 July 2019) of NZ$82m has jumped 10% 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 39%, indicating the rate at which SML is growing has slowed down. To understand what's happening, let's examine what's going on with margins and if the rest of the industry is experiencing the hit as well.
In terms of returns from investment, Synlait Milk has fallen short of achieving a 20% return on equity (ROE), recording 17% instead. However, its return on assets (ROA) of 7.8% exceeds the NZ Food industry of 6.0%, indicating Synlait Milk has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Synlait Milk’s debt level, has increased over the past 3 years from 13% to 16%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 85% to 71% over the past 5 years.
What does this mean?
Synlait Milk's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. While Synlait Milk has a good historical track record with positive growth and profitability, there's no certainty that this will extrapolate into the future. I recommend you continue to research Synlait Milk to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SML’s future growth? Take a look at our free research report of analyst consensus for SML’s outlook.
- Financial Health: Are SML’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 July 2019. This may not be consistent with full year annual report figures.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.
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