When Nathan’s Famous Inc (NASDAQ:NATH) announced its most recent earnings (24 December 2017), I did two things: looked at its past earnings track record, then look at what is happening in the industry. Understanding how Nathan’s Famous performed requires a benchmark rather than trying to assess a standalone number at one point in time. Below is a quick commentary on how I see NATH has performed. Check out our latest analysis for Nathan’s Famous
How Did NATH’s Recent Performance Stack Up Against Its Past?
I use the ‘latest twelve-month’ data, which annualizes the most recent half-year data, or in some cases, the latest annual report is already the most recent financial year data. This technique allows me to assess various companies on a similar basis, using new information. For Nathan’s Famous, its most recent trailing-twelve-month earnings is US$2.99M, which, against the previous year’s level, has fallen by a large -58.79%. Given that these figures may be relatively short-term, I’ve determined an annualized five-year figure for Nathan’s Famous’s net income, which stands at US$7.47M This doesn’t look much better, since earnings seem to have gradually been declining over the longer term.
Why is this? Well, let’s look at what’s going on with margins and if the rest of the industry is feeling the heat. Revenue growth over the last few years, has been positive, however, earnings growth has fallen behind meaning Nathan’s Famous has been ramping up its expenses by a lot more. This hurts margins and earnings, and is not a sustainable practice. Eyeballing growth from a sector-level, the US hospitality industry has been growing its average earnings by double-digit 15.24% in the past twelve months, and 11.30% over the past five years. This means that any uplift the industry is benefiting from, Nathan’s Famous has not been able to gain as much as its average peer.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Typically companies that experience an extended period of diminishing earnings are undergoing some sort of reinvestment phase in order to keep up with the latest industry growth and disruption. I recommend you continue to research Nathan’s Famous to get a more holistic view of the stock by looking at:
- 1. Financial Health: Is NATH’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 NATH 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 NATH 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 24 December 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.