In this commentary, I will examine Silver Chef Limited’s (ASX:SIV) latest earnings update (31 December 2017) and compare these figures against its performance over the past couple of years, as well as how the rest of the trade distributors industry performed. As an investor, I find it beneficial to assess SIV’s trend over the short-to-medium term in order to gauge whether or not the company is able to meet its goals, and ultimately sustainably grow over time. Check out our latest analysis for Silver Chef
Commentary On SIV’s Past Performance
To account for any quarterly or half-yearly updates, 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 allows me to analyze different companies on a similar basis, using new information. For Silver Chef, its most recent earnings (trailing twelve month) is AU$2.61M, which compared to last year’s level, has dropped by a non-trivial -84.35%. Since these values may be somewhat nearsighted, I have determined an annualized five-year figure for SIV’s earnings, which stands at AU$13.15M This doesn’t seem to paint a better picture, since earnings seem to have consistently been falling over the longer term.Why could this be happening? Let’s examine what’s transpiring with margins and if the rest of the industry is facing the same headwind. Revenue growth over the last few years, has been positive, however, earnings growth has not been able to catch up, meaning Silver Chef has been increasing its expenses by a lot more. This hurts margins and earnings, and is not a sustainable practice. Eyeballing growth from a sector-level, the Australian trade distributors industry has been growing its average earnings by double-digit 46.41% in the prior twelve months, and a less exciting 8.43% over the past five. This shows that any tailwind the industry is enjoying, Silver Chef has not been able to gain as much as its industry peers.
What does this mean?
Though Silver Chef’s past data is helpful, it is only one aspect of my investment thesis. In some cases, companies that face an extended period of reduction in earnings are going through some sort of reinvestment phase in order to keep up with the recent industry growth and disruption. I suggest you continue to research Silver Chef to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SIV’s future growth? Take a look at our free research report of analyst consensus for SIV’s outlook.
- Financial Health: Is SIV’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.
- 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.