For investors with a long-term horizon, assessing earnings trend over time and against industry benchmarks is more valuable than looking at a single earnings announcement in one point in time. Investors may find my commentary, albeit very high-level and brief, on Origin Agritech Limited (NASDAQ:SEED) useful as an attempt to give more color around how Origin Agritech is currently performing. Check out our latest analysis for Origin Agritech
Could SEED beat the long-term trend and outperform its industry?
I look at the ‘latest twelve-month’ data, 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 examine various companies on a similar basis, using the most relevant data points. For Origin Agritech, its most recent trailing-twelve-month earnings is -CN¥45.55M, which, in comparison to last year’s level, has become less negative. Given that these values are fairly nearsighted, I’ve determined an annualized five-year figure for SEED’s earnings, which stands at -CN¥19.12M. This suggests that, Origin Agritech has historically performed better than recently, despite the fact that it seems like earnings are now heading back in the right direction again.
We can further assess Origin Agritech’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the past five years Origin Agritech has seen an annual decline in revenue of -13.70%, on average. This adverse movement is a driver of the company’s inability to reach breakeven. Has the entire industry experienced this headwind? Inspecting growth from a sector-level, the US food industry has been growing, albeit, at a unexciting single-digit rate of 9.99% in the past twelve months, and 7.31% over the last five years. This means that, although Origin Agritech is currently loss-making, it may have gained from industry tailwinds, moving earnings towards to right direction.
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 envisage what will occur going forward, and when. The most valuable step is to examine company-specific issues Origin Agritech may be facing and whether management guidance has dependably been met in the past. I recommend you continue to research Origin Agritech to get a more holistic view of the stock by looking at:
1. Financial Health: Is SEED’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 30 September 2017. 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.