After reading Zecotek Photonics Inc’s (TSXV:ZMS) most recent earnings announcement (31 July 2017), I found it useful to look back at how the company has performed in the past and compare this against the latest numbers. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is a crucial aspect. Below is a brief commentary on my key takeaways. See our latest analysis for ZMS
Were ZMS’s earnings stronger than its past performances and the industry?
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 technique allows me to analyze various companies on a more comparable basis, using the most relevant data points. For Zecotek Photonics, the most recent bottom-line -CA$3.4M, which, relative to last year’s level, has become less negative. Given that these values are fairly myopic, I have calculated an annualized five-year value for ZMS’s earnings, which stands at -CA$6.3M. This means that, despite the fact that net income is negative, it has become less negative over the years.
We can further evaluate Zecotek Photonics’s loss by looking at what has been happening in the industry as well as within the company. Initially, I want to quickly look into the line items. Revenue growth over past couple of years has increased by 50.43%, indicating that Zecotek Photonics is in a high-growth period with expenses shooting ahead of elevated top-line growth rates. Eyeballing growth from a sector-level, the Canadian healthcare equipment and supplies industry has been growing average earnings growth of 54.00% over the past year, and a solid 31.02% over the past five. This suggests that any tailwind the industry is profiting from, Zecotek Photonics has not been able to gain as much as its industry peers.
What does this mean?
While past data is useful, it 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 valuable step is to assess company-specific issues Zecotek Photonics may be facing and whether management guidance has dependably been met in the past. You should continue to research Zecotek Photonics to get a more holistic view of the stock by looking at:
1. Financial Health: Is ZMS’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. 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 last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. 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.