Assessing Navitas Limited’s (ASX:NVT) past track record of performance is a valuable exercise for investors. It enables us to reflect on whether the company has met or exceed expectations, which is a great indicator for future performance. Today I will assess NVT’s recent performance announced on 31 December 2017 and evaluate these figures to its longer term trend and industry movements. View our latest analysis for Navitas

Was NVT’s recent earnings decline indicative of a tough track record?

For the purpose of this commentary, I like to use data from the most recent 12 months, which either annualizes the most recent 6-month earnings update, or in some cases, the most recent annual report is already the latest available financial data. This enables me to examine different companies on a more comparable basis, using the latest information. For Navitas, its most recent bottom-line (trailing twelve month) is AU$51.76M, which, in comparison to the previous year’s figure, has plunged by a significant -47.34%. Since these figures are relatively myopic, I’ve estimated an annualized five-year figure for NVT’s earnings, which stands at AU$73.88M This doesn’t look much better, since earnings seem to have consistently been declining over the longer term.

Why could this be happening? Well, let’s take a look at what’s transpiring with margins and if the rest of the industry is feeling the heat. Revenue growth over the past couple of years, has been positive, however, earnings growth has fallen behind meaning Navitas has been increasing its expenses by a lot more. This harms margins and earnings, and is not a sustainable practice. Looking at growth from a sector-level, the Australian consumer services industry has been growing, albeit, at a unexciting single-digit rate of 8.44% in the prior twelve months, and a substantial 15.66% over the previous five years. This means that whatever uplift the industry is profiting from, Navitas has not been able to reap as much as its industry peers.

What does this mean?

Navitas’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Typically companies that experience an extended period of decline in earnings are undergoing some sort of reinvestment phase with the aim of keeping up with the recent industry disruption and expansion. I recommend you continue to research Navitas to get a better picture of the stock by looking at:

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

• 2. Financial Health: Is NVT’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.

• 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.