When Sprintex Limited (ASX:SIX) released its most recent earnings update (30 June 2017), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Understanding how Sprintex performed requires a benchmark rather than trying to assess a standalone number at one point in time. Below is a quick commentary on how I see SIX has performed. See our latest analysis for Sprintex
Was SIX’s recent earnings decline indicative of a tough track record?
I look at 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 blend enables me to analyze various companies in a uniform manner using the latest information. For Sprintex, its most recent twelve-month earnings is -A$4.3M, which, in comparison to last year’s level, has become more negative. Since these figures may be somewhat myopic, I’ve determined an annualized five-year figure for Sprintex’s earnings, which stands at -A$4.6M. This means even though net income is negative, it has become less negative over the years.
Additionally, we can assess Sprintex’s loss by looking at what has been happening in the industry as well as within the company. Firstly, I want to quickly look into the line items. Revenue growth over the last couple of years has grown by 16.05%, signalling that Sprintex is in a high-growth period with expenses shooting ahead of elevated top-line growth rates, leading to yearly losses. Looking at growth from a sector-level, the Australian auto components industry has been growing, albeit, at a subdued single-digit rate of 3.32% in the prior twelve months, . This is a change from a volatile drop of -3.75% in the last couple of years. This means whatever recent the industry is enduring, it’s hitting Sprintex harder than its peers.
What does this mean?
Though Sprintex’s past data is helpful, it is only one aspect of my investment thesis. With companies that are currently loss-making, it is always difficult to forecast what will occur going forward, and when. The most useful step is to examine company-specific issues Sprintex may be facing and whether management guidance has consistently been met in the past. I recommend you continue to research Sprintex to get a more holistic view of the stock by looking at:
1. Financial Health: Is SIX’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.