Examining Electro-Sensors Inc’s (NASDAQ:ELSE) past track record of performance is a useful exercise for investors. It allows us to reflect on whether the company has met or exceed expectations, which is a powerful signal for future performance. Below, I will assess ELSE’s latest performance announced on 31 March 2018 and weight these figures against its longer term trend and industry movements. View our latest analysis for Electro-Sensors
Did ELSE perform worse than its track record and industry?
For the purpose of this commentary, I like 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 blend enables me to analyze various companies on a similar basis, using new information. For Electro-Sensors, its latest trailing-twelve-month earnings is US$177.00K, which, against the prior year’s level, has plunged by -14.49%. Given that these values may be fairly short-term, I have created an annualized five-year figure for Electro-Sensors’s net income, which stands at US$742.61K This doesn’t look much better, as earnings seem to have gradually been diminishing over time.
What could be happening here? Well, let’s look at what’s going on with margins and whether the whole industry is facing the same headwind. Revenue growth over the past couple of years, has been positive, yet earnings growth has been falling. This means Electro-Sensors has been ramping up expenses, which is hurting margins and earnings, and is not a sustainable practice. Inspecting growth from a sector-level, the US electronic industry has been growing its average earnings by double-digit 16.53% over the past twelve months, and 10.17% over the last five years. This suggests that whatever tailwind the industry is profiting from, Electro-Sensors has not been able to realize the gains unlike its average peer.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Usually companies that endure a prolonged period of diminishing earnings are going through some sort of reinvestment phase with the aim of keeping up with the recent industry growth and disruption. I recommend you continue to research Electro-Sensors to get a more holistic view of the stock by looking at:
- Financial Health: Is ELSE’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.
- Valuation: What is ELSE 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 ELSE is currently mispriced by the market.
- 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 31 March 2018. 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.