Does Watchstone Group Plc’s (AIM:WTG) 56.2% EPS Growth Reflect The Long-Term Trend?

Examining Watchstone Group Plc’s (AIM:WTG) past track record of performance is an insightful exercise for investors. It allows us to reflect on whether or not the company has met or exceed expectations, which is a great indicator for future performance. Today I will assess WTG’s latest performance announced on 30 June 2017 and compare these figures to its longer term trend and industry movements. See our latest analysis for WTG

Were WTG’s earnings stronger than its past performances and the industry?

I like to use 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 enables me to analyze different companies in a uniform manner using new information. Watchstone Group’s most recent earnings -£63M, which, in comparison to the previous year’s level, has become less negative. Given that these values are fairly short-term thinking, I have computed an annualized five-year value for WTG’s net income, which stands at -£69M. This means that, although net income is negative, it has become less negative over the years.

AIM:WTG Income Statement Nov 29th 17
AIM:WTG Income Statement Nov 29th 17
We can further analyze Watchstone Group’s loss by researching what’s going on in the industry on top of within the company. First, I want to briefly look into the line items. Revenue growth over last few years has been negative at -12.39%. The key to profitability here is to make sure the company’s cost growth is well-managed. Looking at growth from a sector-level, the UK it services industry has been growing its average earnings by double-digit 26.09% over the prior twelve months, and 25.41% over the past couple of years. This shows that, though Watchstone Group is currently loss-making, it may have benefited from industry tailwinds, moving earnings in the right direction.

What does this mean?

While past data is useful, it doesn’t tell the whole story. With companies that are currently loss-making, it is always difficult to predict what will occur going forward, and when. The most valuable step is to examine company-specific issues Watchstone Group may be facing and whether management guidance has consistently been met in the past. I suggest you continue to research Watchstone Group to get a better picture of the stock by looking at:

1. Financial Health: Is WTG’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.

2. Valuation: What is WTG worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether WTG is currently mispriced by the market.

3. 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 last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.