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CHF Solutions Inc (NASDAQ:CHFS): Does The Earnings Decline Make It An Underperformer?

Seth Doty

Examining CHF Solutions Inc’s (NASDAQ:CHFS) past track record of performance is a useful exercise for investors. It allows us to reflect on whether the company has met or exceed expectations, which is a powerful signal for future performance. Below, I will assess CHFS’s latest performance announced on 31 March 2018 and weight these figures against its longer term trend and industry movements. View out our latest analysis for CHF Solutions

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

CHFS is loss-making, with the most recent trailing twelve-month earnings of -US$26.56m (from 31 March 2018), which compared to last year has become more negative. Furthermore, the company’s loss seem to be growing over time, with the five-year earnings average of -US$20.13m. Each year, for the past five years CHFS has seen an annual increase in operating expense growth, outpacing revenue growth of 51.50%, on average. This adverse movement is a driver of the company’s inability to reach breakeven. Viewing growth from a sector-level, the US medical equipment industry has been growing, albeit, at a muted single-digit rate of 8.02% over the previous twelve months, and 8.91% over the past five. This means any uplift the industry is deriving benefit from, CHF Solutions has not been able to realize the gains unlike its average peer.

NasdaqCM:CHFS Income Statement June 25th 18

Given that CHF Solutions is not profitable, even if operating expenses (SG&A and one-year R&D) continues to fall at previous year’s rate of -12.83%, the company’s current cash level (US$10.50m) will still be insufficient to cover its expenses in the upcoming year. This is not a great sign in terms of operations and cash management. Although this is a relatively simplistic calculation, and CHF Solutions may continue to reduce its costs further or open a new line of credit instead of issuing new equity shares, the analysis still helps us understand how sustainable the CHF Solutions’s operation is, and when things may have to change.

What does this mean?

CHF Solutions’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Companies that incur net loss is always difficult to envisage what will occur going forward, and when. The most useful step is to examine company-specific issues CHF Solutions may be facing and whether management guidance has consistently been met in the past. You should continue to research CHF Solutions to get a better picture of the stock by looking at:

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