Should You Be Content With Square Inc’s (NYSE:SQ) Earnings Growth?
Examining Square Inc’s (NYSE:SQ) 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 SQ’s latest performance announced on 31 December 2017 and weight these figures against its longer term trend and industry movements. Check out our latest analysis for Square
Could SQ beat the long-term trend and outperform its industry?
I use the ‘latest twelve-month’ data, 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 technique enables me to assess different companies on a more comparable basis, using the latest information. For Square, its most recent bottom-line (trailing twelve month) is -US$62.81M, which compared to the previous year’s level, has become less negative. Given that these values are fairly nearsighted, I’ve calculated an annualized five-year value for Square’s earnings, which stands at -US$150.70M. This suggests that, despite the fact that net income is negative, it has become less negative over the years.
We can further analyze Square’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the last five years Square’s top-line has risen by 29.97% on average, implying that the company is in a high-growth phase with expenses racing ahead revenues, leading to annual losses. Scanning growth from a sector-level, the US it industry has been growing, albeit, at a subdued single-digit rate of 4.41% in the prior twelve months, and a substantial 11.47% over the past five years. This means that despite the fact that Square is presently running a loss, whatever recent headwind the industry is experiencing, Square is less exposed compared to its peers.
What does this mean?
Though Square’s past data is helpful, it is only one aspect of my investment thesis. Companies that incur net loss is always difficult to predict what will occur going forward, and when. The most valuable step is to assess company-specific issues Square may be facing and whether management guidance has regularly been met in the past. I suggest you continue to research Square to get a better picture of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for SQ’s future growth? Take a look at our free research report of analyst consensus for SQ’s outlook.
2. Financial Health: Is SQ’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.
