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Does Value Line Inc’s (VALU) Past Performance Indicate A Weaker Future?

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 Value Line Inc’s (NASDAQ:VALU) 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 Value Line

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

For the purpose of this commentary, I like to use data from the most recent 12 months, 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 blend allows me to analyze different companies in a uniform manner using the most relevant data points. Value Line’s most recent twelve-month earnings is $6.2M, which, relative to last year’s level, has sunken by a non-trivial -46.02%. Given that these values are somewhat nearsighted, I’ve created an annualized five-year value for Value Line’s net income, which stands at $12.1M. This doesn’t look much better, since earnings seem to have consistently been deteriorating over time.

NasdaqCM:VALU Income Statement Dec 11th 17
NasdaqCM:VALU Income Statement Dec 11th 17

Why is this? Well, let’s look at what’s occurring with margins and whether the rest of the industry is feeling the heat. Although revenue growth in the past few years, has been negative, earnings growth has been falling by even more, implying that Value Line has been ramping up its expenses. This harms margins and earnings, and is not a sustainable practice. Scanning growth from a sector-level, the US capital markets industry has been growing its average earnings by double-digit 17.00% over the previous year, and 10.45% over the previous few years. This means that whatever tailwind the industry is profiting from, Value Line has not been able to leverage it as much as its industry peers.

What does this mean?

Though Value Line’s past data is helpful, it is only one aspect of my investment thesis. Generally companies that endure a prolonged period of diminishing earnings are undergoing some sort of reinvestment phase in order to keep up with the latest industry expansion and disruption. I suggest you continue to research Value Line to get a better picture of the stock by looking at:

1. Financial Health: Is VALU’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. Valuation: What is VALU worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether VALU is currently mispriced by the market.

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 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.