After reading DHX Media Ltd’s (TSX:DHX.B) 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 DHX.B has outperformed, or whether it is simply riding an industry wave. Below is a brief commentary on my key takeaways. View our latest analysis for DHX Media
Commentary On DHX.B’s Past Performance
For the most up-to-date info, I use data from the most recent 12 months, which annualizes the most recent half-year data, or in some cases, the latest annual report is already the most recent financial year data. This allows me to analyze different stocks on a similar basis, using the most relevant data points. For DHX Media, its most recent bottom-line (trailing twelve month) is CA$4.80M, which, against the prior year’s figure, has taken a dive by a substantial -69.24%. Since these figures are fairly short-term thinking, I have calculated an annualized five-year figure for DHX Media’s net income, which stands at CA$9.67M This doesn’t look much better, since earnings seem to have steadily been diminishing over the longer term.
Why is this? Let’s examine what’s going on with margins and if the whole industry is feeling the heat. Revenue growth over the past few years, has been positive, however, earnings growth has fallen behind meaning DHX Media has been ramping up its expenses by a lot more. This hurts margins and earnings, and is not a sustainable practice. Looking at growth from a sector-level, the Canadian media industry has been enduring some headwinds over the previous few years, leading to an average earnings drop of -25.54% in the most recent year. This suggests that any headwind the industry is enduring, it’s hitting DHX Media harder than its peers.
What does this mean?
Though DHX Media’s past data is helpful, it is only one aspect of my investment thesis. Usually companies that endure a prolonged period of diminishing earnings are undergoing some sort of reinvestment phase . Although, if the whole industry is struggling to grow over time, it may be a indicator of a structural shift, which makes DHX Media and its peers a higher risk investment. You should continue to research DHX Media to get a more holistic view of the stock by looking at:
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1. Future Outlook: What are well-informed industry analysts predicting for DHX.B’s future growth? Take a look at our free research report of analyst consensus for DHX.B’s outlook.
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2. Financial Health: Is DHX.B’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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3. 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.