Does Carlo Gavazzi Holding AG’s (VTX:GAV) -20% Earnings Drop Reflect A Longer Term Trend?

After reading Carlo Gavazzi Holding AG’s (VTX:GAV) latest earnings update (30 September 2018), 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 GAV 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 Carlo Gavazzi Holding

Was GAV’s recent earnings decline indicative of a tough track record?

GAV’s trailing twelve-month earnings (from 30 September 2018) of CHF8.9m has declined by -20% 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 -3.3%, indicating the rate at which GAV is growing has slowed down. What could be happening here? Let’s examine what’s transpiring with margins and whether the rest of the industry is facing the same headwind.

SWX:GAV Income Statement Export January 24th 19
SWX:GAV Income Statement Export January 24th 19

In terms of returns from investment, Carlo Gavazzi Holding has fallen short of achieving a 20% return on equity (ROE), recording 9.6% instead. However, its return on assets (ROA) of 6.3% exceeds the CH Electrical industry of 6.2%, indicating Carlo Gavazzi Holding has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Carlo Gavazzi Holding’s debt level, has declined over the past 3 years from 15% to 14%.

What does this mean?

Carlo Gavazzi Holding’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Generally companies that face a prolonged period of reduction in earnings are going through some sort of reinvestment phase with the aim of keeping up with the latest industry expansion and disruption. You should continue to research Carlo Gavazzi Holding to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for GAV’s future growth? Take a look at our free research report of analyst consensus for GAV’s outlook.

  2. Financial Health: Are GAV’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.

  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 30 September 2018. 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.