After looking at Smith Micro Software Inc’s (NASDAQ:SMSI) latest earnings announcement (30 September 2017), I found it useful to revisit the company’s performance in the past couple of years and assess this against the most recent figures. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is a crucial aspect. Below is a brief commentary on my key takeaways. View our latest analysis for Smith Micro Software
How Well Did SMSI Perform?
I prefer to use data from the most recent 12 months, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This technique allows me to assess different companies on a more comparable basis, using new information. For Smith Micro Software, its most recent bottom-line (trailing twelve month) is -US$9.39M, which, relative to the previous year’s figure, has become less negative. Since these values are fairly short-term thinking, I have determined an annualized five-year figure for SMSI’s net income, which stands at -US$35.40M. This suggests that, although net income is negative, it has become less negative over the years.
We can further analyze Smith Micro Software’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the last five years Smith Micro Software has seen an annual decline in revenue of -18.44%, 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 software industry has been growing, albeit, at a subdued single-digit rate of 9.84% in the previous twelve months, and a substantial 11.81% over the last five years. This means despite the fact that Smith Micro Software is presently running a loss, it may have benefited from industry tailwinds, moving earnings in the 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 predict what will happen in the future and when. The most insightful step is to assess company-specific issues Smith Micro Software may be facing and whether management guidance has steadily been met in the past. You should continue to research Smith Micro Software to get a better picture of the stock by looking at:
- 1. Financial Health: Is SMSI’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.