For long term investors, improvement in profitability and outperformance against the industry can be important characteristics in a stock. In this article, I will take a look at Kip McGrath Education Centres Limited’s (ASX:KME) track record on a high level, to give you some insight into how the company has been performing against its historical trend and its industry peers. See our latest analysis for Kip McGrath Education Centres

Despite a decline, did KME underperform the long-term trend and the industry?

I use the ‘latest twelve-month’ data, which either annualizes the most recent 6-month earnings update, or in some cases, the most recent annual report is already the latest available financial data. This method allows me to analyze many different companies in a uniform manner using the latest information. For Kip McGrath Education Centres, its most recent earnings (trailing twelve month) is AU$1.48M, which, against last year’s level, has plunged by -7.84%. Given that these values are relatively nearsighted, I’ve determined an annualized five-year value for Kip McGrath Education Centres’s earnings, which stands at AU$682.41K This shows that despite the fact that earnings declined from last year, in the long run, Kip McGrath Education Centres’s earnings have been growing on average.

How has it been able to do this? Well, let’s take a look at if it is solely owing to industry tailwinds, or if Kip McGrath Education Centres has seen some company-specific growth. In the last couple of years, Kip McGrath Education Centres grew its bottom line faster than revenue by effectively controlling its costs. This has led to a margin expansion and profitability over time. Eyeballing growth from a sector-level, the Australian consumer services industry has been enduring some headwinds in the past year, leading to an average earnings drop of -8.99%. This is a significant change, given that the industry has constantly been delivering a a robust growth of 15.66% in the past five years. This suggests that any recent headwind the industry is enduring, Kip McGrath Education Centres is less exposed compared to its peers.

What does this mean?

Though Kip McGrath Education Centres’s past data is helpful, it is only one aspect of my investment thesis. Companies that are profitable, but have volatile earnings, can have many factors impacting its business. I recommend you continue to research Kip McGrath Education Centres to get a more holistic view of the stock by looking at:

• 1. Financial Health: Is KME’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.

• 2. Valuation: What is KME worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether KME is currently mispriced by the market.

• 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 December 2017. 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.