Examining Tucows Inc’s (NASDAQ:TCX) past track record of performance is an insightful exercise for investors. It allows us to reflect on whether or not the company has met or exceed expectations, which is a great indicator for future performance. Today I will assess TCX’s latest performance announced on 30 June 2018 and compare these figures to its longer term trend and industry movements.
Did TCX’s recent earnings growth beat the long-term trend and the industry?
TCX’s trailing twelve-month earnings (from 30 June 2018) of US$22m has jumped 44% compared to the previous year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 34%, indicating the rate at which TCX is growing has accelerated. What’s enabled this growth? Well, let’s take a look at if it is only a result of industry tailwinds, or if Tucows has seen some company-specific growth.
In the past couple of years, Tucows grew its bottom line faster than revenue by successfully controlling its costs. This has led to a margin expansion and profitability over time.
Scanning growth from a sector-level, the US it industry has been growing its average earnings by double-digit 31% in the prior year, and 12% over the past five. This growth is a median of profitable companies of 25 IT companies in US including Value Exchange International, Sykes Enterprises and ALJ Regional Holdings. This shows that any tailwind the industry is profiting from, Tucows is able to amplify this to its advantage.
In terms of returns from investment, Tucows has invested its equity funds well leading to a 32% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 7.5% exceeds the US IT industry of 7.1%, indicating Tucows has used its assets more efficiently. However, its return on capital (ROC), which also accounts for Tucows’s debt level, has declined over the past 3 years from 25% to 15%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 36% to 99% over the past 5 years.
What does this mean?
Though Tucows’s past data is helpful, it is only one aspect of my investment thesis. 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 Tucows to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TCX’s future growth? Take a look at our free research report of analyst consensus for TCX’s outlook.
- Financial Health: Are TCX’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.
- 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 email@example.com.