After looking at Appen Limited’s (ASX:APX) latest earnings update (30 June 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. See our latest analysis for Appen

How Well Did APX Perform?

For the purpose of this commentary, I like to use data from the most recent 12 months, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This technique allows me to assess different companies on a similar basis, using new information. For Appen, its latest earnings (trailing twelve month) is A$13.2M, which compared to the prior year’s level, has increased by 19.53%. Since these values are fairly myopic, I’ve determined an annualized five-year value for Appen’s earnings, which stands at A$6.2M. This suggests that, on average, Appen has been able to increasingly grow its earnings over the last couple of years as well.

What’s enabled this growth? Let’s take a look at if it is solely a result of an industry uplift, or if Appen has experienced some company-specific growth. Over the past few years, Appen grew its bottom line faster than revenue by efficiently controlling its costs. This has led to a margin expansion and profitability over time. Looking at growth from a sector-level, the Australian it services industry has been growing its average earnings by double-digit 16.41% in the prior twelve months, and 19.63% over the previous few years. This suggests that whatever uplift the industry is benefiting from, Appen is capable of amplifying this to its advantage.

What does this mean?

Though Appen’s past data is helpful, it is only one aspect of my investment thesis. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? I suggest you continue to research Appen to get a more holistic view of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for APX’s future growth? Take a look at our free research report of analyst consensus for APX’s outlook.

2. Financial Health: Is APX’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.