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Simris Alg AB (publ) (STO:SIMRIS B): Does The Earnings Decline Make It An Underperformer?

Simply Wall St

When Simris Alg AB (publ) (OM:SIMRIS B) released its most recent earnings update (30 September 2019), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Being able to interpret how well Simris Alg has done so far requires weighing its performance against a benchmark, rather than looking at a standalone number at a point in time. In this article, I've summarized the key takeaways on how I see SIMRIS B has performed.

See our latest analysis for Simris Alg

Commentary On SIMRIS B's Past Performance

SIMRIS B is loss-making, with the most recent trailing twelve-month earnings of -kr26.5m (from 30 September 2019), 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 -kr18.3m. Each year, for the past five years SIMRIS B has seen an annual increase in operating expense growth, outpacing revenue growth of 14%, on average. This adverse movement is a driver of the company's inability to reach breakeven.

Inspecting growth from a sector-level, the SE personal products industry has been enduring some headwinds over the previous year, leading to an average earnings drop of -6.4%. This is a significant change, given that the industry has constantly been delivering a a strong growth of 16% in the previous five years. Since the Personal Products sector in SE is relatively small, I’ve included similar companies in the wider region in order to get a better idea of the growth, which is a median of profitable companies of companies such as Midsona, MedicaNatumin and New Nordic Healthbrands. This suggests that whatever recent headwind the industry is enduring, it’s hitting Simris Alg harder than its peers.

OM:SIMRIS B Income Statement, November 23rd 2019

Since Simris Alg is currently unprofitable, with operating expenses (opex) growing year-on-year at 14%, it may need to raise more cash over the next year. It currently has kr2.3m in cash and short-term investments, however, opex (SG&A and one-year R&D) reachedkr20m in the latest twelve months. Even though this is analysis is fairly basic, and Simris Alg still can cut its overhead in the near future, or raise debt capital instead of coming to equity markets, 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?

Simris Alg'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 forecast what will happen in the future and when. The most insightful step is to assess company-specific issues Simris Alg may be facing and whether management guidance has consistently been met in the past. You should continue to research Simris Alg to get a better picture of the stock by looking at:

  1. Financial Health: Are SIMRIS B’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 2019. This may not be consistent with full year annual report figures.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

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