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After reading XRF Scientific Limited’s (ASX:XRF) latest earnings update (31 December 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 XRF 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 XRF Scientific
Despite a decline, did XRF underperform the long-term trend and the industry?
I look at 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 allows me to examine various companies in a uniform manner using the most relevant data points. For XRF Scientific, its latest earnings (trailing twelve month) is AU$953.08K, which, in comparison to the previous year’s figure, has plunged by -4.48%. Since these figures are fairly myopic, I’ve created an annualized five-year value for XRF Scientific’s earnings, which stands at AU$2.48M This doesn’t look much better, since earnings seem to have gradually been falling over the longer term.
Why could this be happening? Let’s examine what’s going on with margins and if the whole industry is feeling the heat. Although revenue growth over the past couple of years, has been negative, earnings growth has been falling by even more, meaning XRF Scientific has been increasing its expenses. This hurts margins and earnings, and is not a sustainable practice. Looking at growth from a sector-level, the Australian machinery industry has been amplifying average earnings growth of 75.50% in the previous year, and a flatter -1.96% over the last five years. This means in the recent industry expansion, XRF Scientific has not been able to reap as much as its average peer.
What does this mean?
Though XRF Scientific’s past data is helpful, it is only one aspect of my investment thesis. Generally companies that endure a prolonged period of diminishing earnings are undergoing some sort of reinvestment phase in order to keep up with the recent industry expansion and disruption. I recommend you continue to research XRF Scientific to get a more holistic view of the stock by looking at:
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Future Outlook: What are well-informed industry analysts predicting for XRF’s future growth? Take a look at our free research report of analyst consensus for XRF’s outlook.
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Financial Health: Is XRF’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.
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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 trailing twelve months from 31 December 2017. 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.