Should You Be Concerned About Cellmid Limited's (ASX:CDY) -27.8% Earnings Decline?

When Cellmid Limited's (ASX:CDY) announced its latest earnings (30 June 2017), I wanted to understand how these figures stacked up against its past performance. The two benchmarks I used were Cellmid's average earnings over the past couple of years, and its industry performance. These are useful yardsticks to help me gauge whether or not CDY actually performed well. Below is a quick commentary on how I see CDY has performed. View our latest analysis for Cellmid

Was CDY's recent earnings decline worse than the long-term trend and the industry?

I prefer to use the ‘latest twelve-month’ data, 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 enables me to analyze various companies in a uniform manner using new information. For Cellmid, its latest twelve-month earnings is -A$4.5M, which, against the previous year's figure, has become more negative. Since these figures are somewhat nearsighted, I have created an annualized five-year value for CDY's earnings, which stands at -A$2.5M. This doesn't look much better, since earnings seem to have consistently been getting more and more negative over time.

We can further analyze Cellmid's loss by looking at what has been happening in the industry as well as within the company. Initially, I want to briefly look into the line items. Revenue growth over the last couple of years has risen by 41.94%, implying that Cellmid is in a high-growth phase with expenses shooting ahead of elevated top-line growth rates, leading to yearly losses. Viewing growth from a sector-level, the Australian biotechnology industry has been growing, albeit, at a subdued single-digit rate of 9.22% over the prior twelve months, and a substantial 31.57% over the past five years. This suggests that any tailwind the industry is deriving benefit from, Cellmid has not been able to gain as much as its average peer.

What does this mean?

Cellmid's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. Companies that incur net loss is always difficult to forecast what will occur going forward, and when. The most insightful step is to assess company-specific issues Cellmid may be facing and whether management guidance has regularly been met in the past. You should continue to research Cellmid to get a more holistic view of the stock by looking at:

1. Financial Health: Is CDY’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 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.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.