For long-term investors, assessing earnings trend over time and against industry benchmarks is more beneficial than examining a single earnings announcement at a point in time. Investors may find my commentary, albeit very high-level and brief, on Sonic Foundry Inc (NASDAQ:SOFO) useful as an attempt to give more color around how Sonic Foundry is currently performing. See our latest analysis for Sonic Foundry
How Well Did SOFO Perform?
I prefer to use the ‘latest twelve-month’ data, 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 technique enables me to analyze various companies in a uniform manner using new information. For Sonic Foundry, its most recent trailing-twelve-month earnings is -$5.2M, which compared to the previous year’s level, has become more negative. Since these values may be relatively short-term, I have computed an annualized five-year value for SOFO’s earnings, which stands at -$2.2M. This doesn’t seem to paint a better picture, as earnings seem to have steadily been getting more and more negative over time.
Additionally, we can examine Sonic Foundry’s loss by researching what’s going on in the industry as well as within the company. Firstly, I want to briefly look into the line items. Revenue growth over the past few years has grown by a mere 8.20%. Since top-line growth is also pretty stale the key to profitability in the future would be controlling cost growth rates. Looking at growth from a sector-level, the US software industry has been growing its average earnings by double-digit 16.28% in the prior year, and 10.69% over the past couple of years. This means that whatever uplift the industry is profiting from, Sonic Foundry has not been able to reap 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 predict what will happen in the future and when. The most valuable step is to assess company-specific issues Sonic Foundry may be facing and whether management guidance has regularly been met in the past. You should continue to research Sonic Foundry to get a better picture of the stock by looking at:
1. Financial Health: Is SOFO’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. Valuation: What is SOFO worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether SOFO is currently mispriced by the market.
3. 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.