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Improvement in profitability and outperformance against the industry can be important characteristics in a stock for some investors. Below, I will assess Digimarc Corporation's (NASDAQ:DMRC) 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.
Despite a decline, did DMRC underperform the long-term trend and the industry?
DMRC is loss-making, with the most recent trailing twelve-month earnings of -US$32.9m (from 31 March 2019), which compared to last year has become more negative. Furthermore, the company's loss seem to be growing over time, with the five-year earnings average of -US$14.8m. Each year, for the past five years DMRC has seen an annual decline in revenue of -4.3%, on average. This adverse movement is a driver of the company's inability to reach breakeven.
Viewing growth from a sector-level, the US software industry has been growing its average earnings by double-digit 22% in the prior year,
Given that Digimarc is currently unprofitable, with operating expenses (opex) growing year-on-year at 10%, it may need to raise more cash over the next year. It currently has US$37m in cash and short-term investments, however, opex (SG&A and one-year R&D) reached US$45m in the latest twelve months. Although this is a relatively simplistic calculation, and Digimarc may reduce its costs or raise debt capital instead of coming to equity markets, the analysis still helps us understand how sustainable the Digimarc’s operation is, and when things may have to change.
What does this mean?
Though Digimarc's past data is helpful, it is only one aspect of my investment thesis. With companies that are currently loss-making, it is always difficult to predict what will happen in the future and when. The most useful step is to examine company-specific issues Digimarc may be facing and whether management guidance has consistently been met in the past. I recommend you continue to research Digimarc to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for DMRC’s future growth? Take a look at our free research report of analyst consensus for DMRC’s outlook.
- Financial Health: Are DMRC’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.
- 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 March 2019. This may not be consistent with full year annual report figures.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.