After reading Central Pacific Financial Corp’s (NYSE:CPF) latest earnings update (31 December 2017), I found it beneficial to look back at how the company has performed in the past and compare this against the most recent numbers. As a long-term investor I tend to pay attention to earnings trend, rather than a single number at one point in time. I also like to compare against an industry benchmark to understand whether CPF has outperformed, or whether it is simply riding an industry wave. Below is a brief commentary on my key takeaways. View our latest analysis for Central Pacific Financial
Did CPF perform worse than its track record and industry?
I prefer to use the ‘latest twelve-month’ data, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This method allows me to assess different stocks on a more comparable basis, using new information. For Central Pacific Financial, its latest trailing-twelve-month earnings is US$41.20M, which compared to the previous year’s level, has plunged by -12.32%. Since these figures are somewhat nearsighted, I’ve calculated an annualized five-year figure for Central Pacific Financial’s earnings, which stands at US$65.33M This doesn’t seem to paint a better picture, as earnings seem to have steadily been deteriorating over time.
Why is this? Well, let’s take a look at what’s transpiring with margins and if the rest of the industry is experiencing the hit as well. Revenue growth in the past few years, has been positive, yet earnings growth has been falling. This implies that Central Pacific Financial has been increasing expenses, which is harming margins and earnings, and is not a sustainable practice. Scanning growth from a sector-level, the US banks industry has been growing, albeit, at a unexciting single-digit rate of 4.42% over the prior twelve months, and 8.42% over the past five. This means that any near-term headwind the industry is experiencing, it’s hitting Central Pacific Financial harder than its peers.
What does this mean?
Though Central Pacific Financial’s past data is helpful, it is only one aspect of my investment thesis. Typically companies that face a prolonged period of reduction 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 Central Pacific Financial and its peers a riskier investment. I suggest you continue to research Central Pacific Financial to get a better picture of the stock by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for CPF’s future growth? Take a look at our free research report of analyst consensus for CPF’s outlook.
- 2. Financial Health: Is CPF’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 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.