With A -68.24% Earnings Drop, Is Biocon Limited’s (NSE:BIOCON) A Concern?
Investors with a long-term horizong may find it valuable to assess Biocon Limited’s (NSEI:BIOCON) 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 Biocon is currently performing. View our latest analysis for Biocon
Commentary On BIOCON’s Past Performance
I prefer to use the ‘latest twelve-month’ data, which either annualizes the most recent 6-month earnings update, or in some cases, the most recent annual report is already the latest available financial data. This method enables me to analyze many different companies on a similar basis, using new information. For Biocon, its most recent earnings (trailing twelve month) is ₹3.70B, which, against the previous year’s figure, has dropped by a non-trivial -68.24%. Given that these values may be fairly short-term thinking, I’ve created an annualized five-year figure for BIOCON’s net income, which stands at ₹5.36B This doesn’t look much better, since earnings seem to have gradually been deteriorating over time.
Why could this be happening? Let’s examine what’s occurring with margins and if the entire industry is facing the same headwind. Over the past couple of years, revenue growth has not been able to catch up, which suggests that Biocon’s bottom line has been propelled by unsustainable cost-cutting. Viewing growth from a sector-level, the IN biotechs industry has been enduring severe headwinds over the past year, leading to an average earnings drop of -67.71%. This is a significant change, given that the industry has constantly been delivering a a solid growth of 14.07% in the previous five years. This means that whatever near-term headwind the industry is experiencing, it’s hitting Biocon harder than its peers.
What does this mean?
Though Biocon’s past data is helpful, it is only one aspect of my investment thesis. In some cases, companies that face a prolonged period of decline in earnings are undergoing some sort of reinvestment phase Although, if the whole industry is struggling to grow over time, it may be a indicator of a structural shift, which makes Biocon and its peers a higher risk investment. I suggest you continue to research Biocon to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for BIOCON’s future growth? Take a look at our free research report of analyst consensus for BIOCON’s outlook.
Financial Health: Is BIOCON’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 2017. This may not be consistent with full year annual report figures.
To help readers see pass 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.
