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After looking at Small Cap Danmark A/S’s (CPSE:SCD) latest earnings update (31 December 2017), I found it helpful to revisit the company’s performance in the past couple of years 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 an important aspect. In this article I briefly touch on my key findings. Check out our latest analysis for Small Cap Danmark
Was SCD’s weak performance lately a part of a long-term decline?
To account for any quarterly or half-yearly updates, I use the ‘latest twelve-month’ data, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This enables me to examine many different companies on a similar basis, using the most relevant data points. For Small Cap Danmark, its most recent trailing-twelve-month earnings is Ø13.09M, which, in comparison to the previous year’s level, has declined by a significant -44.40%. Since these figures may be fairly nearsighted, I have estimated an annualized five-year figure for SCD’s net income, which stands at Ø18.51M This doesn’t look much better, since earnings seem to have steadily been declining over time.
Why is this? Well, let’s take a look at what’s going on with margins and whether the entire industry is feeling the heat. In the past couple of years, revenue growth has failed to keep up which suggests that Small Cap Danmark’s bottom line has been driven by unsustainable cost-cutting. Inspecting growth from a sector-level, the DK diversified financial industry has been growing its average earnings by double-digit 17.13% in the prior twelve months, and 13.43% over the past five. This suggests that any tailwind the industry is profiting from, Small Cap Danmark has not been able to gain as much as its average peer.
What does this mean?
Small Cap Danmark’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Usually companies that endure a prolonged period of decline in earnings are going through some sort of reinvestment phase with the aim of keeping up with the recent industry expansion and disruption. I suggest you continue to research Small Cap Danmark to get a more holistic view of the stock by looking at: