After reading Servalakshmi Paper Limited’s (NSEI:SERVALL) most recent earnings announcement (31 March 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. See our latest analysis for Servalakshmi Paper
Were SERVALL’s earnings stronger than its past performances 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 analyze many different companies on a more comparable basis, using the most relevant data points. For Servalakshmi Paper, its most recent earnings is -₹622.1M, which, against the previous year’s level, has become less negative. Since these figures are fairly short-term, I have calculated an annualized five-year value for Servalakshmi Paper’s earnings, which stands at -₹628.0M. This means that, even though net income is negative, it has become less negative over the years.
We can further analyze Servalakshmi Paper’s loss by researching what has been happening in the industry as well as within the company. First, I want to quickly look into the line items. Revenue growth over the past couple of years has been negative at -12.70%. The key to profitability here is to make sure the company’s cost growth is well-managed. Eyeballing growth from a sector-level, the IN forestry industry has been growing its average earnings by double-digit 17.48% in the prior year, and 17.72% over the past couple of years. This means that, even though Servalakshmi Paper is currently running a loss, it may have been aided by industry tailwinds, moving earnings in the right direction.
What does this mean?
Servalakshmi Paper’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 forecast what will occur going forward, and when. The most valuable step is to assess company-specific issues Servalakshmi Paper may be facing and whether management guidance has dependably been met in the past. You should continue to research Servalakshmi Paper to get a more holistic view of the stock by looking at: