Want To Invest In APA Group (ASX:APA)? Here’s How It Performed Lately
After looking at APA Group’s (ASX:APA) latest earnings update (31 December 2017), I found it helpful to revisit the company’s performance in the past couple of years and compare this against the latest numbers. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is an important aspect. In this article I briefly touch on my key findings.
Check out our latest analysis for APA Group
How Did APA’s Recent Performance Stack Up Against Its Past?
APA’s trailing twelve-month earnings (from 31 December 2017) of AU$220.98m has increased by 0.49% 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 4.80%, indicating the rate at which APA is growing has slowed down. Why could this be happening? Well, let’s examine what’s occurring with margins and whether the whole industry is feeling the heat.
Revenue growth over the last couple of years, has been positive, however, earnings growth has fallen behind meaning APA Group 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 Australian gas utilities industry has been growing its average earnings by double-digit 21.48% in the prior year, and a less exciting 9.44% over the previous five years. This growth is a median of profitable companies of stocks internationally, operating in the industry. I’ve decided to use a global peer group as there’s not enough companies in that are considered as appropriate peers, and I wanted to get a broader perspective on the regional growth. Some peers include , and . This means whatever uplift the industry is deriving benefit from, APA Group has not been able to realize the gains unlike its average peer.
In terms of returns from investment, APA Group has fallen short of achieving a 20% return on equity (ROE), recording 5.61% instead. Furthermore, its return on assets (ROA) of 4.90% is below the AU Gas Utilities industry of 5.41%, indicating APA Group’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for APA Group’s debt level, has declined over the past 3 years from 3.44% to 2.57%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 173.58% to 247.09% over the past 5 years.
What does this mean?
APA Group’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Recent positive growth isn’t always indicative of a continued optimistic outlook. There may be factors that are influencing the industry as a whole, hence the high industry growth rate over the same period of time. I suggest you continue to research APA Group to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for APA’s future growth? Take a look at our free research report of analyst consensus for APA’s outlook.
Financial Health: Are APA’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 December 2017. This may not be consistent with full year annual report figures.
To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.