For investors with a long-term horizon, assessing earnings trend over time and against industry benchmarks is more valuable than looking at a single earnings announcement in one point in time. Investors may find my commentary, albeit very high-level and brief, on KCOM Group PLC (LSE:KCOM) useful as an attempt to give more color around how KCOM Group is currently performing. See our latest analysis for KCOM Group
Was KCOM’s recent earnings decline indicative of a tough track record?
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 method enables me to examine different stocks on a more comparable basis, using the latest information. “For KCOM Group, its “, latest twelve-month earnings is £24.0M, which, in comparison to the previous year’s level, has dropped by a non-trivial -63.06%. Since these figures are relatively nearsighted, I have estimated an annualized five-year value for KCOM’s earnings, which stands at £34.9M. This doesn’t seem to paint a better picture, as earnings seem to have gradually been falling over the longer term.
What could be happening here? Well, let’s take a look at what’s transpiring with margins and if the rest of the industry is feeling the heat. In the past few years, revenue growth has failed to keep up with earnings, which implies that KCOM Group’s bottom line has been driven by unsustainable cost-cutting. Viewing growth from a sector-level, the UK telecom industry has been enduring severe headwinds in the prior twelve months, leading to an average earnings drop of -31.09%. This is a momentous change, given that the industry has been delivering a positive rate of 2.79%, on average, over the previous five years. This suggests that whatever near-term headwind the industry is facing, it’s hitting KCOM Group harder than its peers.
What does this mean?
Though KCOM Group’s past data is helpful, it is only one aspect of my investment thesis. Generally companies that experience a drawn out period of reduction in earnings are going through some sort of reinvestment phase . However, if the entire industry is struggling to grow over time, it may be a indicator of a structural change, which makes KCOM Group and its peers a higher risk investment. I recommend you continue to research KCOM Group to get a better picture of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for KCOM’s future growth? Take a look at our free research report of analyst consensus for KCOM’s outlook.