Investors with a long-term horizong may find it valuable to assess Universal Technical Institute, Inc.'s (NYSE:UTI) earnings trend over time and against its industry benchmark as opposed to simply looking at a sincle earnings announcement at one point in time. Below is my commentary, albiet very simple and high-level, on how Universal Technical Institute is currently performing.
Was UTI's recent earnings decline worse than the long-term trend and the industry?
UTI is loss-making, with the most recent trailing twelve-month earnings of -US$29.6m (from 30 June 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 -US$15.7m. Each year, for the past five years UTI has seen an annual decline in revenue of -4.1%, on average. This adverse movement is a driver of the company's inability to reach breakeven.
Eyeballing growth from a sector-level, the US consumer services industry has been growing, albeit, at a unexciting single-digit rate of 5.5% in the previous year,
Given that Universal Technical Institute is not profitable, even if operating expenses (SG&A and one-year R&D) continues to fall at previous year’s rate of -0.8%, the company’s current cash level (US$43m) will still be insufficient to cover its expenses in the upcoming year. This is not a great sign in terms of operations and cash management. Even though this is analysis is fairly basic, and Universal Technical Institute still can cut its overhead further, or open a new line of credit instead of issuing new equity shares, 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?
While past data is useful, it doesn’t tell the whole story. Companies that incur net loss is always difficult to envisage what will occur going forward, and when. The most useful step is to examine company-specific issues Universal Technical Institute may be facing and whether management guidance has regularly been met in the past. You should continue to research Universal Technical Institute to get a better picture of the stock by looking at:
- Financial Health: Are UTI’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.
- 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 June 2019. This may not be consistent with full year annual report figures.
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