Want To Invest In NZX Limited (NZSE:NZX)? Here's How It Performed Lately
In this commentary, I will examine NZX Limited's (NZSE:NZX) latest earnings update (31 December 2018) and compare these figures against its performance over the past couple of years, as well as how the rest of the capital markets industry performed. As an investor, I find it beneficial to assess NZX’s trend over the short-to-medium term in order to gauge whether or not the company is able to meet its goals, and ultimately sustainably grow over time.
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Was NZX weak performance lately part of a long-term decline?
NZX's trailing twelve-month earnings (from 31 December 2018) of NZ$14m has declined by -4.9% 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 -3.1%, indicating the rate at which NZX is growing has slowed down. Why could this be happening? Let's examine what's transpiring with margins and if the rest of the industry is feeling the heat.
In terms of returns from investment, NZX 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 8.0% exceeds the NZ Capital Markets industry of 7.2%, indicating NZX has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for NZX’s debt level, has increased over the past 3 years from 19% to 20%.
What does this mean?
Though NZX's past data is helpful, it is only one aspect of my investment thesis. In some cases, companies that face an extended period of reduction in earnings are going through some sort of reinvestment phase However, if the entire industry is struggling to grow over time, it may be a signal of a structural change, which makes NZX and its peers a higher risk investment. I suggest you continue to research NZX to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for NZX’s future growth? Take a look at our free research report of analyst consensus for NZX’s outlook.
Financial Health: Are NZX’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 2018. This may not be consistent with full year annual report figures.
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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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.
