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Did Schmitt Industries Inc’s (NASDAQ:SMIT) Recent Earnings Growth Beat The Trend?

After looking at Schmitt Industries Inc’s (NASDAQ:SMIT) latest earnings update (28 February 2018), I found it helpful to revisit the company’s performance in the past couple of years and compare this against the latest numbers. 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 an important aspect. In this article I briefly touch on my key findings. View our latest analysis for Schmitt Industries

Did SMIT beat its long-term earnings growth trend and its industry?

For the purpose of this commentary, I like to use 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 allows me to analyze different stocks on a more comparable basis, using new information. For Schmitt Industries, its most recent bottom-line (trailing twelve month) is -US$449.23K, which, in comparison to the previous year’s level, has become less negative. Given that these values are fairly short-term thinking, I have computed an annualized five-year value for SMIT’s net income, which stands at -US$546.11K. This means that, while net income is negative, it has become less negative over the years.

NasdaqCM:SMIT Income Statement Apr 13th 18
NasdaqCM:SMIT Income Statement Apr 13th 18

We can further evaluate Schmitt Industries’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the past half a decade Schmitt Industries’s revenue growth has been fairly soft, with an annual growth rate of -0.79%, 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 electronic industry has been growing its average earnings by double-digit 16.38% over the prior twelve months, and 10.33% over the previous five years. This shows that, although Schmitt Industries is presently running a loss, it may have gained from industry tailwinds, moving earnings into a more favorable position.

What does this mean?

Schmitt Industries’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 hard to envisage what will happen in the future and when. The most useful step is to assess company-specific issues Schmitt Industries may be facing and whether management guidance has steadily been met in the past. You should continue to research Schmitt Industries to get a more holistic view of the stock by looking at:

  • 1. Financial Health: Is SMIT’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. Valuation: What is SMIT 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 SMIT is currently mispriced by the market.

  • 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 28 February 2018. 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.