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Should Route1 Inc’s (CVE:ROI) Recent Earnings Decline Worry You?

In this commentary, I will examine Route1 Inc’s (TSXV:ROI) latest earnings update (30 September 2017) and compare these figures against its performance over the past couple of years, as well as how the rest of the software industry performed. As an investor, I find it beneficial to assess ROI’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. View our latest analysis for Route1

Was ROI weak performance lately part of a long-term decline?

For the most up-to-date info, I use data from the most recent 12 months, which annualizes the most recent half-year data, or in some cases, the latest annual report is already the most recent financial year data. This technique enables me to assess various companies on a more comparable basis, using the latest information. For Route1, its most recent earnings (trailing twelve month) is -CA$274.16K, which compared to last year’s level, has turned from positive to negative. Since these values may be fairly nearsighted, I’ve computed an annualized five-year value for ROI’s net income, which stands at CA$122.42K.

TSXV:ROI Income Statement Feb 20th 18
TSXV:ROI Income Statement Feb 20th 18

We can further evaluate Route1’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the last five years Route1’s revenue growth has been relatively soft, with an annual growth rate of 1.05%, on average. The company’s inability to breakeven has been aided by the relatively flat top-line in the past. Looking at growth from a sector-level, the Canadian software industry has been growing its average earnings by double-digit 13.38% over the past year, and 23.01% over the past five. This means that whatever tailwind the industry is profiting from, Route1 has not been able to gain as much as its average peer.

What does this mean?

Route1’s track record can be a valuable insight into its earnings performance, but it certainly 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 useful step is to examine company-specific issues Route1 may be facing and whether management guidance has regularly been met in the past. I suggest you continue to research Route1 to get a more holistic view of the stock by looking at:

  • 1. Financial Health: Is ROI’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.

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