When Estre Ambiental Inc (NASDAQ:ESTR) released its most recent earnings update (30 June 2017), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Being able to interpret how well Estre Ambiental has done so far requires weighing its performance against a benchmark, rather than looking at a standalone number at a point in time. In this article, I’ve summarized the key takeaways on how I see ESTR has performed. See our latest analysis for Estre Ambiental
Commentary On ESTR’s Past Performance
I look at data from the most recent 12 months, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This technique enables me to analyze different companies in a uniform manner using the most relevant data points. For Estre Ambiental, its most recent trailing-twelve-month earnings is -R$122.9M, which, relative to the prior year’s figure, has become less negative. Since these values are relatively short-term, I have created an annualized five-year value for Estre Ambiental’s net income, which stands at -R$258.8M. This means even though net income is negative, it has become less negative over the years.
Additionally, we can assess Estre Ambiental’s loss by looking at what has been happening in the industry as well as within the company. Firstly, I want to quickly look into the line items. Revenue growth over the last couple of years has increased by a mere 4.41%. Given that top-line growth is also pretty stale the key to profitability going forward would be controlling cost growth rates. Scanning growth from a sector-level, the US commercial services industry has been growing, albeit, at a muted single-digit rate of 6.67% over the previous twelve months, and 8.88% over the previous five years. This shows that, although Estre Ambiental is presently running a loss, it may have gained from industry tailwinds, moving earnings into a more favorable position.
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 forecast what will happen in the future and when. The most useful step is to examine company-specific issues Estre Ambiental may be facing and whether management guidance has steadily been met in the past. You should continue to research Estre Ambiental to get a more holistic view of the stock by looking at:
1. Financial Health: Is ESTR’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.
2. 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 30 June 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.