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Does Model N, Inc.'s (NYSE:MODN) Past Performance Indicate A Weaker Future?

Simply Wall St

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When Model N, Inc.'s (NYSE:MODN) announced its latest earnings (31 March 2019), I wanted to understand how these figures stacked up against its past performance. The two benchmarks I used were Model N's average earnings over the past couple of years, and its industry performance. These are useful yardsticks to help me gauge whether or not MODN actually performed well. Below is a quick commentary on how I see MODN has performed.

Check out our latest analysis for Model N

Commentary On MODN's Past Performance

MODN is loss-making, with the most recent trailing twelve-month earnings of -US$29.7m (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$21.9m. Each year, for the past five years MODN has seen an annual increase in operating expense growth, outpacing revenue growth of 14%, on average. This adverse movement is a driver of the company's inability to reach breakeven.

Eyeballing growth from a sector-level, the US software industry has been growing its average earnings by double-digit 22% in the prior year,

NYSE:MODN Income Statement, June 20th 2019

Given that Model N is loss-making, with operating expenses (opex) growing year-on-year at 14%, it may need to raise more cash over the next year. It currently has US$54m in cash and short-term investments, however, opex (SG&A and one-year R&D) reached US$104m in the latest twelve months. Even though this is analysis is fairly basic, and Model N still can cut its overhead in the near future, or raise debt capital instead of coming to equity markets, the outcome of this analysis still gives us an idea of the company’s timeline and when things will have to start changing, since its current operation is unsustainable.

What does this mean?

While past data is useful, it doesn’t tell the whole story. With companies that are currently loss-making, it is always difficult to predict what will occur going forward, and when. The most valuable step is to assess company-specific issues Model N may be facing and whether management guidance has regularly been met in the past. I suggest you continue to research Model N to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for MODN’s future growth? Take a look at our free research report of analyst consensus for MODN’s outlook.
  2. Financial Health: Are MODN’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.
  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 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 editorial-team@simplywallst.com. 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.