First Derivatives plc (AIM:FDP): Has Recent Earnings Growth Beaten Long-Term Trend?
After looking at First Derivatives plc’s (AIM:FDP) latest earnings announcement (28 February 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 tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is a crucial aspect. Below is a brief commentary on my key takeaways. View our latest analysis for First Derivatives
Could FDP beat the long-term trend and outperform its industry?
For the most up-to-date info, I 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 method enables me to analyze different companies on a more comparable basis, using the most relevant data points. For First Derivatives, the most recent earnings is £9M, which, relative to the previous year’s level, has jumped up by 15.08%. Since these values are somewhat short-term, I have calculated an annualized five-year value for FDP’s net income, which stands at £8M. This shows that, on average, First Derivatives has been able to steadily grow its bottom line over the past few years as well.
How has it been able to do this? Let’s take a look at whether it is merely because of an industry uplift, or if First Derivatives has experienced some company-specific growth. The ascend in earnings seems to be driven by a strong top-line increase outpacing its growth rate of costs. Though this resulted in a margin contraction, it has made First Derivatives more profitable. Scanning growth from a sector-level, the UK it services industry has been growing its average earnings by double-digit 26.09% over the past twelve months, and 25.41% over the previous five years. This shows that whatever uplift the industry is deriving benefit from, First Derivatives has not been able to realize the gains unlike its industry peers.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? I recommend you continue to research First Derivatives to get a better picture of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for FDP’s future growth? Take a look at our free research report of analyst consensus for FDP’s outlook.
2. Financial Health: Is FDP’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 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.
