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Does Psychemedics Corporation’s (NASDAQ:PMD) -18% Earnings Drop Reflect A Longer Term Trend?

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After reading Psychemedics Corporation’s (NASDAQ:PMD) most recent earnings announcement (30 June 2018), I found it useful to look back at how the company has performed in the past and compare this against the latest numbers. As a long term investor, I pay close attention to earnings trend, rather than the figures published at one point in time. I also compare against an industry benchmark to check whether Psychemedics’s performance has been impacted by industry movements. In this article I briefly touch on my key findings.

See our latest analysis for Psychemedics

How Did PMD’s Recent Performance Stack Up Against Its Past?

PMD’s trailing twelve-month earnings (from 30 June 2018) of US$6m has declined by -18% compared to the previous year.

Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 20%, indicating the rate at which PMD is growing has slowed down. Why could this be happening? Well, let’s take a look at what’s occurring with margins and whether the whole industry is facing the same headwind.

NasdaqCM:PMD Income Statement Export October 12th 18
NasdaqCM:PMD Income Statement Export October 12th 18

In terms of returns from investment, Psychemedics has invested its equity funds well leading to a 34% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 23% exceeds the US Healthcare industry of 6.6%, indicating Psychemedics has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Psychemedics’s debt level, has increased over the past 3 years from 15% to 39%.

What does this mean?

Psychemedics’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Companies that are profitable, but have volatile earnings, can have many factors influencing its business. I recommend you continue to research Psychemedics to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for PMD’s future growth? Take a look at our free research report of analyst consensus for PMD’s outlook.

  2. Financial Health: Are PMD’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 30 June 2018. This may not be consistent with full year annual report figures.

To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.