Increase in profitability and industry-beating performance can be essential considerations in a stock for some investors. In this article, I will take a look at The9 Limited’s (NASDAQ:NCTY) track record on a high level, to give you some insight into how the company has been performing against its historical trend and its industry peers. View our latest analysis for The9
Were NCTY’s earnings stronger than its past performances and the industry?
For the purpose of this commentary, I like to use the ‘latest twelve-month’ data, 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 technique enables me to analyze various companies on a similar basis, using the most relevant data points. For The9, its most recent earnings (trailing twelve month) is -CN¥386.15M, which, against last year’s figure, has become less negative. Since these values are fairly short-term, I’ve estimated an annualized five-year figure for The9’s net income, which stands at -CN¥413.22M. This means though net income is negative, it has become less negative over the years.
We can further analyze The9’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the last five years The9 has seen an annual decline in revenue of -23.69%, on average. This adverse movement is a driver of the company’s inability to reach breakeven. Has the entire industry experienced this headwind? Inspecting growth from a sector-level, the US software industry has been growing its average earnings by double-digit 10.79% over the past twelve months, and 11.68% over the past half a decade. This suggests that, though The9 is currently running a loss, it may have been aided by industry tailwinds, moving earnings into a more favorable position.
What does this mean?
The9’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 examine company-specific issues The9 may be facing and whether management guidance has consistently been met in the past. I recommend you continue to research The9 to get a more holistic view of the stock by looking at:
1. Financial Health: Is NCTY’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.