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Magal Security Systems Ltd (NASDAQ:MAGS): Does The -54.26% Earnings Drop Reflect A Longer Term Trend?

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Gabriel Boyd
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For long term investors, improvement in profitability and outperformance against the industry can be important characteristics in a stock. In this article, I will take a look at Magal Security Systems Ltd’s (NASDAQ:MAGS) 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. Check out our latest analysis for Magal Security Systems

Was MAGS’s recent earnings decline indicative of a tough track record?

I prefer to use data from the most recent 12 months, which either annualizes the most recent 6-month earnings update, or in some cases, the most recent annual report is already the latest available financial data. This blend allows me to examine various companies on a similar basis, using the most relevant data points. For Magal Security Systems, its most recent earnings (trailing twelve month) is -US$3.38M, which, in comparison to the previous year’s figure, has become more negative. Given that these values may be relatively myopic, I have estimated an annualized five-year figure for MAGS’s earnings, which stands at US$1.35M.

NasdaqGM:MAGS Income Statement May 31st 18
NasdaqGM:MAGS Income Statement May 31st 18

We can further analyze Magal Security Systems’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the last five years Magal Security Systems has seen an annual decline in revenue of -2.81%, on average. This adverse movement is a driver of the company’s inability to reach breakeven. Has the entire industry experienced this headwind? Eyeballing growth from a sector-level, the US electronic industry has been growing its average earnings by double-digit 16.53% over the past twelve months, and 10.17% over the past five. This suggests that any tailwind the industry is benefiting from, Magal Security Systems has not been able to leverage it as much as its average peer.

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 forecast what will occur going forward, and when. The most useful step is to examine company-specific issues Magal Security Systems may be facing and whether management guidance has regularly been met in the past. You should continue to research Magal Security Systems to get a better picture of the stock by looking at:

  1. Financial Health: Is MAGS’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 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.