After looking at Datawatch Corporation’s (NASDAQ:DWCH) latest earnings announcement (31 December 2017), I found it useful to revisit the company’s performance in the past couple of years and assess this against the most recent figures. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is a crucial aspect. Below is a brief commentary on my key takeaways. Check out our latest analysis for Datawatch
Were DWCH’s earnings stronger than its past performances and the industry?
To account for any quarterly or half-yearly updates, I use data from the most recent 12 months, 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 analyze different companies on a similar basis, using the most relevant data points. For Datawatch, its most recent trailing-twelve-month earnings is -US$2.59M, which, relative to last year’s figure, has become less negative. Since these figures are relatively nearsighted, I’ve estimated an annualized five-year figure for Datawatch’s earnings, which stands at -US$13.83M. This means that, although net income is negative, it has become less negative over the years.
We can further assess Datawatch’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the past five years Datawatch’s top-line has grown by a mere 7.48%, on average. The company’s inability to breakeven has been aided by the relatively flat top-line in the past. Inspecting growth from a sector-level, the US software industry has been growing its average earnings by double-digit 11.76% over the past year, and 14.16% over the past five. This means that, despite the fact that Datawatch is presently unprofitable, it may have been aided by industry tailwinds, moving earnings into a more favorable position.
What does this mean?
Datawatch’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. With companies that are currently loss-making, it is always difficult to predict what will happen in the future and when. The most valuable step is to assess company-specific issues Datawatch may be facing and whether management guidance has steadily been met in the past. You should continue to research Datawatch to get a more holistic view of the stock by looking at:
- Financial Health: Is DWCH’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.
- Valuation: What is DWCH worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether DWCH is currently mispriced by the market.
- 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.