Investors with a long-term horizong may find it valuable to assess Cervantes Corporation Limited’s (ASX:CVS) 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 Cervantes is currently performing. View our latest analysis for Cervantes
Despite a decline, did CVS underperform the long-term trend and the industry?
I prefer to use the ‘latest twelve-month’ data, 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 assess different companies on a more comparable basis, using the most relevant data points. For Cervantes, its most recent earnings (trailing twelve month) is -AU$416.27K, which, relative to the previous year’s figure, has become more negative. Since these values are relatively short-term thinking, I have created an annualized five-year value for Cervantes’s net income, which stands at -AU$238.98K. This doesn’t seem to paint a better picture, since earnings seem to have steadily been getting more and more negative over time.
We can further examine Cervantes’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the past five years Cervantes has seen an annual decline in revenue of -60.60%, on average. This adverse movement is a driver of the company’s inability to reach breakeven. Has the entire industry experienced this headwind? Looking at growth from a sector-level, the Australian metals and mining industry has been growing its average earnings by double-digit 18.18% in the prior year, and a more subdued 8.68% over the previous five years. This means that whatever uplift the industry is deriving benefit from, Cervantes has not been able to reap as much as its industry peers.
What does this mean?
Though Cervantes’s past data is helpful, it is only one aspect of my investment thesis. With companies that are currently loss-making, it is always difficult to forecast what will occur going forward, and when. The most valuable step is to assess company-specific issues Cervantes may be facing and whether management guidance has steadily been met in the past. You should continue to research Cervantes to get a better picture of the stock by looking at:
Financial Health: Is CVS’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 30 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.