After looking at ITL Health Group’s (ASX:ITD) latest earnings announcement (31 December 2017), I found it useful to revisit the company’s performance in the past couple of years and assess this against the most recent figures. 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 ITL Health Group’s performance has been impacted by industry movements. In this article I briefly touch on my key findings. Check out our latest analysis for ITL Health Group
Was ITD weak performance lately part of a long-term decline?
I 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 allows me to assess various companies in a uniform manner using new information. For ITL Health Group, its most recent trailing-twelve-month earnings is AU$1.12M, which compared to the prior year’s level, has plunged by -20.37%. Since these values are fairly short-term, I have determined an annualized five-year figure for ITD’s earnings, which stands at AU$2.04M This doesn’t seem to paint a better picture, as earnings seem to have gradually been falling over the longer term.
What could be happening here? Well, let’s take a look at what’s occurring with margins and whether the rest of the industry is experiencing the hit as well. Revenue growth over the past couple of years, has been positive, yet earnings growth has been deteriorating. This suggest that ITL Health Group has been ramping up expenses, which is hurting margins and earnings, and is not a sustainable practice. Looking at growth from a sector-level, the Australian medical equipment industry has been enduring some headwinds over the previous year, leading to an average earnings drop of -3.23%. This is a major change, given that the industry has constantly been delivering a a solid growth of 14.86% in the previous five years. This means any recent headwind the industry is experiencing, it’s hitting ITL Health Group harder than its peers.
What does this mean?
Though ITL Health Group’s past data is helpful, it is only one aspect of my investment thesis. Usually companies that experience a drawn out period of decline in earnings are undergoing some sort of reinvestment phase However, if the entire industry is struggling to grow over time, it may be a sign of a structural change, which makes ITL Health Group and its peers a higher risk investment. I recommend you continue to research ITL Health Group to get a better picture of the stock by looking at: