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For long term investors, improvement in profitability and outperformance against the industry can be important characteristics in a stock. In this article, I will take a look at Tesco PLC's (LON:TSCO) track record on a high level, to give you some insight into how the company has been performing against its historical trend and its industry peers.
Did TSCO's recent earnings growth beat the long-term trend and the industry?
TSCO's trailing twelve-month earnings (from 23 February 2019) of UK£1.3b has jumped 34% 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 39%, indicating the rate at which TSCO is growing has slowed down. What could be happening here? Well, let's examine what's transpiring with margins and if the whole industry is facing the same headwind.
In terms of returns from investment, Tesco has fallen short of achieving a 20% return on equity (ROE), recording 8.9% instead. Furthermore, its return on assets (ROA) of 3.2% is below the GB Consumer Retailing industry of 4.5%, indicating Tesco's are utilized less efficiently. However, its return on capital (ROC), which also accounts for Tesco’s debt level, has increased over the past 3 years from 3.0% to 7.4%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 78% to 49% over the past 5 years.
What does this mean?
Tesco's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. While Tesco has a good historical track record with positive growth and profitability, there's no certainty that this will extrapolate into the future. I recommend you continue to research Tesco to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TSCO’s future growth? Take a look at our free research report of analyst consensus for TSCO’s outlook.
- Financial Health: Are TSCO’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 23 February 2019. This may not be consistent with full year annual report figures.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.