After looking at SPAR Group Inc’s (NASDAQ:SGRP) latest earnings announcement (30 June 2017), I found it useful to revisit the company’s performance in the past couple of years and assess this against the most recent figures. 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 SPAR Group’s performance has been impacted by industry movements. In this article I briefly touch on my key findings. See our latest analysis for SGRP
Was SGRP weak performance lately part of a long-term decline?
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 blend allows me to examine different companies in a uniform manner using the most relevant data points. SPAR Group’s most recent bottom-line is $0M, which, in comparison to the previous year’s level, has plunged by a non-trivial -88.07%. Given that these values are somewhat myopic, I’ve estimated an annualized five-year value for SGRP’s earnings, which stands at $2M. This doesn’t seem to paint a better picture, since earnings seem to have gradually been falling over the longer term.
What could be happening here? Let’s examine what’s transpiring with margins and whether the rest of the industry is experiencing the hit as well. Revenue growth in the last few years, has been positive, yet earnings growth has been declining. This suggest that SPAR Group has been ramping up expenses, which is hurting margins and earnings, and is not a sustainable practice. Looking at growth from a sector-level, the US media industry has been growing its average earnings by double-digit 10.21% over the past year, and 11.01% over the previous few years. This means that whatever uplift the industry is enjoying, SPAR Group has not been able to reap as much as its industry peers.
What does this mean?
Though SPAR Group’s past data is helpful, it is only one aspect of my investment thesis. Generally companies that endure an extended period of decline in earnings are going through some sort of reinvestment phase with the aim of keeping up with the latest industry expansion and disruption. I suggest you continue to research SPAR Group to get a more holistic view of the stock by looking at:
1. Financial Health: Is SGRP’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 last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. 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.