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Understanding how Prada S.p.A. (HKG:1913) is performing as a company requires looking at more than just a years' earnings. Today I will run you through a basic sense check to gain perspective on how Prada is doing by comparing its latest earnings with its long-term trend as well as the performance of its luxury industry peers.
See our latest analysis for Prada
Was 1913's recent earnings decline worse than the long-term trend and the industry?
1913's trailing twelve-month earnings (from 31 December 2018) of €205m has declined by -14% 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 -24%, indicating the rate at which 1913 is growing has slowed down. Why is this? Well, let’s take a look at what’s occurring with margins and whether the whole industry is feeling the heat.
In terms of returns from investment, Prada has fallen short of achieving a 20% return on equity (ROE), recording 7.2% instead. Furthermore, its return on assets (ROA) of 4.5% is below the HK Luxury industry of 5.8%, indicating Prada's are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Prada’s debt level, has declined over the past 3 years from 14% to 8.8%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 11% to 32% over the past 5 years.
What does this mean?
Prada's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. Generally companies that experience a prolonged period of diminishing earnings are undergoing some sort of reinvestment phase Although, if the entire industry is struggling to grow over time, it may be a signal of a structural shift, which makes Prada and its peers a higher risk investment. I suggest you continue to research Prada to get a better picture of the stock by looking at:
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Future Outlook: What are well-informed industry analysts predicting for 1913’s future growth? Take a look at our free research report of analyst consensus for 1913’s outlook.
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Financial Health: Are 1913’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.
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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.