After reading Comvita Limited’s (NZSE:CVT) latest earnings update (30 June 2017), I found it beneficial to look back at how the company has performed in the past and compare this against the most recent numbers. As a long-term investor I tend to pay attention to earnings trend, rather than a single number at one point in time. I also like to compare against an industry benchmark to understand whether CVT has outperformed, or whether it is simply riding an industry wave. Below is a brief commentary on my key takeaways. Check out our latest analysis for Comvita
Was CVT’s recent earnings decline worse than the long-term trend and the industry?
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 blend allows me to assess various companies on a more comparable basis, using the most relevant data points. Comvita’s most recent earnings is NZ$10M, which compared to the prior year’s level, has sunken by a large -34.06%. Since these figures are relatively short-term thinking, I’ve created an annualized five-year value for CVT’s net income, which stands at NZ$8M. This suggests that despite the fact that earnings growth was negative against the prior year, over time, Comvita’s profits have been rising on average.
What’s enabled this growth? Well, let’s take a look at whether it is merely because of an industry uplift, or if Comvita has seen some company-specific growth. In the last few years, Comvita increased its bottom line faster than revenue by effectively controlling its costs. This brought about a margin expansion and profitability over time. Viewing growth from a sector-level, the NZ personal products industry has been growing, albeit, at a muted single-digit rate of 8.02% in the previous twelve months, and 4.03% over the past five years. This means that whatever uplift the industry is profiting from, Comvita has not been able to reap as much as its average peer.
What does this mean?
Comvita’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Companies are profitable, but have unpredictable earnings, can have many factors affecting its business. You should continue to research Comvita to get a more holistic view of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for CVT’s future growth? Take a look at our free research report of analyst consensus for CVT’s outlook.