When Cavium Inc (NASDAQ:CAVM) released its most recent earnings update (31 December 2017), I wanted to understand how these figures stacked up against its past performance. The two benchmarks I used were Cavium’s average earnings over the past couple of years, and its industry performance. These are useful yardsticks to help me gauge whether or not CAVM actually performed well. Below is a quick commentary on how I see CAVM has performed. Check out our latest analysis for Cavium
Could CAVM beat the long-term trend and outperform its industry?
I like to use data from the most recent 12 months, 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 allows me to examine many different companies on a similar basis, using the most relevant data points. For Cavium, its most recent bottom-line (trailing twelve month) is -US$68.86M, which, against last year’s figure, has become less negative. Given that these figures are relatively nearsighted, I have created an annualized five-year value for Cavium’s earnings, which stands at -US$50.24M. This shows that, Cavium has historically performed better than recently, although it seems like earnings are now heading back towards a more favorable position once more.
We can further analyze Cavium’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the past half a decade Cavium’s top-line has grown by 22.56% on average, implying that the company is in a high-growth period with expenses shooting ahead of revenues, leading to annual losses. Inspecting growth from a sector-level, the US semiconductor industry has been growing its average earnings by double-digit 23.89% over the prior year, and a more muted 8.26% over the previous five years. This shows that, even though Cavium is presently unprofitable, it may have been aided by industry tailwinds, moving earnings in the right direction.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Companies that incur net loss is always difficult to predict what will happen in the future and when. The most insightful step is to assess company-specific issues Cavium may be facing and whether management guidance has regularly been met in the past. You should continue to research Cavium to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CAVM’s future growth? Take a look at our free research report of analyst consensus for CAVM’s outlook.
- Financial Health: Is CAVM’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.