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After reading Swelect Energy Systems Limited’s (NSEI:SWELECTES) latest earnings update (31 March 2017), I found it beneficial to look back at how the company has performed in the past and compare this against the most recent numbers. As a long-term investor I tend to pay attention to earnings trend, rather than a single number at one point in time. I also like to compare against an industry benchmark to understand whether SWELECTES has outperformed, or whether it is simply riding an industry wave. Below is a brief commentary on my key takeaways. See our latest analysis for Swelect Energy Systems
Were SWELECTES’s earnings stronger than its past performances and the industry?
I look at 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 enables me to analyze many different companies on a similar basis, using new information. For Swelect Energy Systems, its latest trailing-twelve-month earnings is ₹216.31M, which compared to the previous year’s figure, has increased by 30.66%. Given that these figures are somewhat short-term thinking, I’ve estimated an annualized five-year figure for SWELECTES’s net income, which stands at ₹499.21M This shows that, even though earnings increased from last year’s level, over the longer term, Swelect Energy Systems’s earnings have been diminishing on average.
Why is this? Let’s examine what’s transpiring with margins and if the rest of the industry is facing the same headwind. Although revenue growth in the last couple of years, has been negative, earnings growth has been falling by even more, meaning Swelect Energy Systems has been increasing its expenses. This hurts margins and earnings, and is not a sustainable practice. Eyeballing growth from a sector-level, the IN electrical industry has been growing its average earnings by double-digit 32.04% in the past twelve months, and 13.52% over the last five years. This means that whatever tailwind the industry is profiting from, Swelect Energy Systems has not been able to reap as much as its industry peers.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Recent positive growth doesn’t necessarily mean it’s onwards and upwards for the company. There could be factors that are influencing the entire industry hence the high industry growth rate over the same time period. You should continue to research Swelect Energy Systems to get a better picture of the stock by looking at: