After reading Lentex SA.’s (WSE:LTX) most recent earnings announcement (30 September 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. Check out our latest analysis for Lentex
Was LTX’s weak performance lately a part of a long-term decline?
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 method allows me to examine various companies on a similar basis, using the most relevant data points. For Lentex, its most recent trailing-twelve-month earnings is ZŁ34.54M, which, in comparison to last year’s figure, has taken a dive by a large -53.56%. Since these figures may be relatively short-term thinking, I have created an annualized five-year value for Lentex’s net income, which stands at ZŁ37.41M This doesn’t seem to paint a better picture, since earnings seem to have steadily been declining over the longer term.
What could be happening here? Let’s examine what’s transpiring with margins and whether the whole industry is facing the same headwind. Over the last couple of years, revenue growth has failed to keep up which suggests that Lentex’s bottom line has been propelled by unmaintainable cost-reductions. Inspecting growth from a sector-level, the PL consumer durables industry has been growing, albeit, at a subdued single-digit rate of 9.66% over the past twelve months, and a substantial 11.86% over the past half a decade. This shows that whatever tailwind the industry is benefiting from, Lentex has not been able to gain as much as its industry peers.
What does this mean?
Though Lentex’s past data is helpful, it is only one aspect of my investment thesis. Generally companies that endure a prolonged period of diminishing earnings are undergoing some sort of reinvestment phase in order to keep up with the latest industry disruption and expansion. I recommend you continue to research Lentex to get a more holistic view of the stock by looking at:
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1. Financial Health: Is LTX’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.
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2. 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 30 September 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.