YPB Group Limited (ASX:YPB): Does The -69.11% Earnings Decline Make It An Underperformer?

After looking at YPB Group Limited’s (ASX:YPB) latest earnings announcement (30 June 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 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. View our latest analysis for YPB Group

Was YPB weak performance lately part of a long-term decline?

For the purpose of this commentary, I like to use the ‘latest twelve-month’ data, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This method allows me to assess many different companies on a more comparable basis, using the most relevant data points. For YPB Group, its most recent bottom-line (trailing twelve month) is -AU$17.95M, which, against the prior year’s level, has become more negative. Given that these values are relatively short-term, I’ve calculated an annualized five-year figure for YPB Group’s earnings, which stands at -AU$11.39M. This doesn’t look much better, as earnings seem to have consistently been getting more and more negative over time.

We can further evaluate YPB Group’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the past five years YPB Group’s top-line has increased by 32.62% on average, implying that the company is in a high-growth period with expenses shooting ahead of revenues, leading to annual losses. Scanning growth from a sector-level, the Australian professional services industry has been enduring some headwinds over the past twelve months, leading to average earnings dropping by more than half. This is a a strong change, given that the industry has been delivering a relatively flat growth rate over the previous few years. This means that whatever recent headwind the industry is facing, it’s hitting YPB Group harder than its peers.

What does this mean?

YPB Group’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. With companies that are currently loss-making, it is always hard to envisage what will occur going forward, and when. The most useful step is to assess company-specific issues YPB Group may be facing and whether management guidance has regularly been met in the past. You should continue to research YPB Group to get a more holistic view of the stock by looking at:

• 1. Financial Health: Is YPB’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. 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 June 2017. This may not be consistent with full year annual report figures.