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Analyzing Metro Performance Glass Limited’s (NZSE:MPG) track record of past performance is a valuable exercise for investors. It enables us to reflect on whether or not the company has met expectations, which is a powerful signal for future performance. Today I will assess MPG’s recent performance announced on 31 March 2018 and compare these figures to its long-term trend and industry movements.
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Was MPG weak performance lately part of a long-term decline?
MPG’s trailing twelve-month earnings (from 31 March 2018) of NZ$16.3m has declined by -16.0% 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 11.5%, indicating the rate at which MPG is growing has slowed down. Why could this be happening? Well, let’s look at what’s going on with margins and if the whole industry is experiencing the hit as well.
Revenue growth over the past few years, has been positive, however, earnings growth has fallen behind meaning Metro Performance Glass has been growing its expenses by a lot more. This harms margins and earnings, and is not a sustainable practice. Looking at growth from a sector-level, the NZ building industry has been relatively flat in terms of earnings growth over the past year, evening out from a solid 11.5% over the previous five years. Since the Building sector in NZ is relatively small, I’ve included similar companies in the wider region in order to get a better idea of the growth, which is a median of profitable companies of companies such as Methven, and . This shows that any near-term headwind the industry is experiencing, it’s hitting Metro Performance Glass harder than its peers.
In terms of returns from investment, Metro Performance Glass has fallen short of achieving a 20% return on equity (ROE), recording 10.2% instead. Furthermore, its return on assets (ROA) of 7.0% is below the NZ Building industry of 9.1%, indicating Metro Performance Glass’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Metro Performance Glass’s debt level, has declined over the past 3 years from 11.3% to 10.1%.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Generally companies that experience a prolonged period of diminishing earnings are undergoing some sort of reinvestment phase However, if the whole industry is struggling to grow over time, it may be a sign of a structural shift, which makes Metro Performance Glass and its peers a riskier investment. I recommend you continue to research Metro Performance Glass to get a better picture of the stock by looking at: