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Investors with a long-term horizong may find it valuable to assess Service Stream Limited’s (ASX:SSM) earnings trend over time and against its industry benchmark as opposed to simply looking at a sincle earnings announcement at one point in time. Below is my commentary, albiet very simple and high-level, on how Service Stream is currently performing.

View our latest analysis for Service Stream

Were SSM’s earnings stronger than its past performances and the industry?

SSM’s trailing twelve-month earnings (from 31 December 2018) of AU$45m has jumped 29% 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 62%, indicating the rate at which SSM is growing has slowed down. To understand what’s happening, let’s examine what’s going on with margins and if the whole industry is facing the same headwind.

In terms of returns from investment, Service Stream has invested its equity funds well leading to a 21% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 12% exceeds the AU Construction industry of 9.3%, indicating Service Stream has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Service Stream’s debt level, has increased over the past 3 years from 12% to 26%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 30% to 0.2% over the past 5 years.

What does this mean?

While past data is useful, it doesn’t tell the whole story. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? You should continue to research Service Stream to get a better picture of the stock by looking at:

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

2. Financial Health: Are SSM’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 31 December 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.