Today I will examine Akzo Nobel NV’s (AMS:AKZA) latest earnings update (31 March 2018) and compare these figures against its performance over the past couple of years, in addition to how the rest of AKZA’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. Check out our latest analysis for Akzo Nobel
How Did AKZA’s Recent Performance Stack Up Against Its Past?
AKZA’s trailing twelve-month earnings (from 31 March 2018) of €426.00m has increased by 2.16% 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 17.80%, indicating the rate at which AKZA is growing has slowed down. To understand what’s happening, let’s examine what’s occurring with margins and if the entire industry is experiencing the hit as well.
In the last couple of years, revenue growth has not been able to keep up with, earnings, which implies that Akzo Nobel’s bottom line has been propelled by unmaintainable cost-cutting. Eyeballing growth from a sector-level, the NL chemicals industry has been growing its average earnings by double-digit 12.83% in the previous year, and a less exciting 7.59% over the past five years. This means any uplift the industry is profiting from, Akzo Nobel has not been able to gain as much as its industry peers.
In terms of returns from investment, Akzo Nobel has not invested its equity funds well, leading to a 7.77% return on equity (ROE), below the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 2.87% is below the NL Chemicals industry of 6.60%, indicating Akzo Nobel’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Akzo Nobel’s debt level, has declined over the past 3 years from 7.75% to 7.02%.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? I recommend you continue to research Akzo Nobel to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AKZA’s future growth? Take a look at our free research report of analyst consensus for AKZA’s outlook.
- Financial Health: Is AKZA’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.