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After reading Megaport Limited’s (ASX:MP1) most recent earnings announcement (31 December 2017), I found it useful to look back at how the company has performed in the past 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 a crucial aspect. Below is a brief commentary on my key takeaways. View our latest analysis for Megaport
Was MP1’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 technique allows me to assess different companies on a more comparable basis, using the most relevant data points. For Megaport, its most recent trailing-twelve-month earnings is -AU$29.48M, which, in comparison to the prior year’s figure, has become more negative. Given that these figures may be somewhat nearsighted, I have determined an annualized five-year value for MP1’s earnings, which stands at -AU$27.91M. This doesn’t seem to paint a better picture, since earnings seem to have gradually been getting more and more negative over time.
We can further analyze Megaport’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the past half a decade Megaport’s top-line has increased by 84.95% on average, implying that the company is in a high-growth phase with expenses shooting ahead of revenues, leading to annual losses. Viewing growth from a sector-level, the Australian internet industry has been growing its average earnings by double-digit 40.19% over the previous twelve months, and 10.14% over the previous five years. This suggests that any tailwind the industry is profiting from, Megaport has not been able to leverage it as much as its average peer.
What does this mean?
Megaport’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Companies that incur net loss is always difficult to envisage what will occur going forward, and when. The most useful step is to assess company-specific issues Megaport may be facing and whether management guidance has consistently been met in the past. I recommend you continue to research Megaport to get a better picture of the stock by looking at: