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Should Avalon Holdings Corporation’s (NYSEMKT:AWX) Recent Earnings Decline Worry You?

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  • AWX

After looking at Avalon Holdings Corporation’s (AMEX:AWX) latest earnings update (31 March 2018), I found it helpful to revisit the company’s performance in the past couple of years and compare this against the latest numbers. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is an important aspect. In this article I briefly touch on my key findings. See our latest analysis for Avalon Holdings

Despite a decline, did AWX underperform the long-term trend and the industry?

I like to use data from the most recent 12 months, which annualizes the most recent half-year data, or in some cases, the latest annual report is already the most recent financial year data. This allows me to analyze various companies on a more comparable basis, using the most relevant data points. For Avalon Holdings, its most recent earnings (trailing twelve month) is -US$180.00K, which compared to last year’s figure, has become more negative. Given that these values may be relatively nearsighted, I’ve computed an annualized five-year value for AWX’s earnings, which stands at -US$211.43K. This means that, though net income is negative, it has become less negative over the years.

AMEX:AWX Income Statement May 22nd 18
AMEX:AWX Income Statement May 22nd 18

We can further examine Avalon Holdings’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the past half a decade Avalon Holdings’s revenue growth has been fairly muted, with an annual growth rate of 1.98%, on average. The company’s inability to breakeven has been aided by the relatively flat top-line in the past. Inspecting growth from a sector-level, the US commercial services industry has been growing, albeit, at a unexciting single-digit rate of 6.32% in the previous year, and a substantial 11.14% over the past half a decade. This means whatever tailwind the industry is enjoying, Avalon Holdings has not been able to leverage it as much as its average peer.

What does this mean?

While past data is useful, it doesn’t tell the whole story. With companies that are currently loss-making, it is always difficult to envisage what will occur going forward, and when. The most insightful step is to examine company-specific issues Avalon Holdings may be facing and whether management guidance has regularly been met in the past. I suggest you continue to research Avalon Holdings to get a better picture of the stock by looking at:

  1. Financial Health: Is AWX’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.

  2. 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 March 2018. 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.