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ForeScout Technologies Inc (NASDAQ:FSCT): Does The Earnings Decline Make It An Underperformer?

Bruce Howe

Today I will take a look at ForeScout Technologies Inc’s (NASDAQ:FSCT) most recent earnings update (31 March 2018) and compare these latest figures against its performance over the past few years, as well as how the rest of the software industry performed. As an investor, I find it beneficial to assess FSCT’s trend over the short-to-medium term in order to gauge whether or not the company is able to meet its goals, and ultimately sustainably grow over time. See our latest analysis for ForeScout Technologies

Despite a decline, did FSCT underperform the long-term trend and the industry?

FSCT is loss-making, with the most recent trailing twelve-month earnings of -US$105.14m (from 31 March 2018), 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$67.96m. Each year, for the past five years FSCT has seen an annual increase in operating expense growth, outpacing revenue growth of 28.10%, 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 11.91% over the past year, and 12.92% over the past five. This means that whatever tailwind the industry is profiting from, ForeScout Technologies has not been able to realize the gains unlike its average peer.

NasdaqGM:FSCT Income Statement June 26th 18

Given that ForeScout Technologies is currently unprofitable, with operating expenses (opex) growing year-on-year at 25.00%, it may need to raise more cash over the next year. It currently has US$223.02m in cash and short-term investments, however, opex (SG&A and one-year R&D) reached US$265.23m in the latest twelve months. Although this is a relatively simplistic calculation, and ForeScout Technologies may reduce its costs or open a new line of credit instead of issuing new equity shares, 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 hard to predict what will occur going forward, and when. The most valuable step is to assess company-specific issues ForeScout Technologies may be facing and whether management guidance has dependably been met in the past. I suggest you continue to research ForeScout Technologies to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for FSCT’s future growth? Take a look at our free research report of analyst consensus for FSCT’s outlook.
  2. Financial Health: Is FSCT’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 2018. 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.