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Interested In The Descartes Systems Group Inc (TSE:DSG)? Here’s What Its Recent Performance Looks Like

Assessing The Descartes Systems Group Inc’s (TSE:DSG) performance as a company requires looking at more than just a years’ earnings data. Below, I will run you through a simple sense check to build perspective on how Descartes Systems Group is doing by comparing its most recent earnings with its historical trend, in addition to the performance of its software industry peers.

See our latest analysis for Descartes Systems Group

How Well Did DSG Perform?

DSG’s trailing twelve-month earnings (from 30 April 2018) of US$27.0m has increased by 9.3% 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 13.6%, indicating the rate at which DSG is growing has slowed down. Why could this be happening? Well, let’s examine what’s going on with margins and if the whole industry is experiencing the hit as well.

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Over the past couple of years, revenue growth has failed to keep up which implies that Descartes Systems Group’s bottom line has been propelled by unmaintainable cost-reductions.

Looking at growth from a sector-level, the Canadian software industry has been growing, albeit, at a subdued single-digit rate of 5.8% in the past year, and a substantial 23.9% over the past five years. This growth is a median of profitable companies of 7 Software companies in CA including Brisio Innovations, Tecsys and NamSys. This means that whatever tailwind the industry is profiting from, Descartes Systems Group is capable of leveraging this to its advantage.

TSX:DSG Income Statement Export September 5th 18
TSX:DSG Income Statement Export September 5th 18

In terms of returns from investment, Descartes Systems Group has fallen short of achieving a 20% return on equity (ROE), recording 5.3% instead. Furthermore, its return on assets (ROA) of 4.3% is below the CA Software industry of 5.1%, indicating Descartes Systems Group’s are utilized less efficiently. However, its return on capital (ROC), which also accounts for Descartes Systems Group’s debt level, has increased over the past 3 years from 6.2% to 6.8%.

What does this mean?

While past data is useful, it doesn’t tell the whole story. While Descartes Systems Group has a good historical track record with positive growth and profitability, there’s no certainty that this will extrapolate into the future. You should continue to research Descartes Systems Group to get a better picture of the stock by looking at:

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

  2. Financial Health: Are DSG’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 April 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.