After reading Solution Dynamics Limited’s (NZSE:SDL) most recent earnings announcement (30 June 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 pay close attention to earnings trend, rather than the figures published at one point in time. I also compare against an industry benchmark to check whether Solution Dynamics’s performance has been impacted by industry movements. In this article I briefly touch on my key findings. See our latest analysis for Solution Dynamics

Did SDL’s recent earnings growth beat the long-term trend and the industry?

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 blend enables me to examine many different companies on a similar basis, using the most relevant data points. For Solution Dynamics, its latest trailing-twelve-month earnings is NZ$1.3M, which, in comparison to last year’s figure, has risen by 28.94%. Given that these figures are somewhat short-term thinking, I’ve created an annualized five-year figure for SDL’s earnings, which stands at NZ$0.4M. This suggests that, generally, Solution Dynamics has been able to increasingly improve its bottom line over the last few years as well.

What’s the driver of this growth? Well, let’s take a look at if it is merely owing to an industry uplift, or if Solution Dynamics has seen some company-specific growth. Over the last couple of years, Solution Dynamics increased its bottom line faster than revenue by successfully controlling its costs. This has led to a margin expansion and profitability over time. Inspecting growth from a sector-level, the NZ it services industry has been growing its average earnings by double-digit 11.12% over the previous twelve months, and 14.31% over the previous five years. This means that whatever uplift the industry is benefiting from, Solution Dynamics is able to leverage this to its advantage.

What does this mean?

Though Solution Dynamics’s past data is helpful, it is only one aspect of my investment thesis. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? I recommend you continue to research Solution Dynamics to get a more holistic view of the stock by looking at:

1. Financial Health: Is SDL’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.