Understanding ClearStar, Inc.'s (AIM:CLSU) performance as a company requires examining more than earnings from one point in time. Today I will take you through a basic sense check to gain perspective on how ClearStar is doing by evaluating its latest earnings with its longer term trend as well as its industry peers' performance over the same period.
How Did CLSU's Recent Performance Stack Up Against Its Past?
CLSU is loss-making, with the most recent trailing twelve-month earnings of -US$1.6m (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$1.5m. Each year, for the past five years CLSU has seen an annual increase in operating expense growth, outpacing revenue growth of 13%, on average. This adverse movement is a driver of the company's inability to reach breakeven.
Viewing growth from a sector-level, the UK professional services industry has been growing its average earnings by double-digit 13% in the past twelve months, and 13% over the previous five years. This growth is a median of profitable companies of 25 Professional Services companies in GB including Impellam Group, DWF Group and K3 Capital Group. This means that any tailwind the industry is profiting from, ClearStar has not been able to gain as much as its average peer.
Since ClearStar is currently unprofitable, with operating expenses (opex) growing year-on-year at 9.0%, it may need to raise more cash over the next year. It currently has US$1.1m in cash and short-term investments, however, opex (SG&A and one-year R&D) reachedUS$12m in the latest twelve months. Even though this is analysis is fairly basic, and ClearStar still can cut its overhead in the near future, 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?
ClearStar's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. Companies that incur net loss is always hard to forecast what will occur going forward, and when. The most insightful step is to assess company-specific issues ClearStar may be facing and whether management guidance has dependably been met in the past. I recommend you continue to research ClearStar to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CLSU’s future growth? Take a look at our free research report of analyst consensus for CLSU’s outlook.
- Financial Health: Are CLSU’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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