Today I will examine dorsaVi Ltd’s (ASX:DVL) latest earnings update (31 December 2017) and compare these figures against its performance over the past couple of years, in addition to how the rest of DVL’s industry performed. As a long-term investor, I find it useful to analyze the company’s trend over time in order to estimate whether or not the company is able to meet its goals, and eventually grow sustainably over time. View out our latest analysis for dorsaVi
Was DVL weak performance lately part of a long-term decline?DVL is loss-making, with the most recent trailing twelve-month earnings of -AU$4.59m (from 31 December 2017), which compared to last year has become more negative. However, the company’s loss seem to be contracting over the medium term, with the five-year earnings average of -AU$4.32m. Each year, for the past five years DVL has seen an annual increase in operating expense growth, outpacing revenue growth of 34.59%, on average. This adverse movement is a driver of the company’s inability to reach breakeven. Inspecting growth from a sector-level, the Australian biotechs industry has been growing its average earnings by double-digit 21.28% in the prior twelve months, and 17.18% over the last five years. This suggests that whatever tailwind the industry is deriving benefit from, dorsaVi has not been able to leverage it as much as its industry peers.
Given that dorsaVi is loss-making, with operating expenses (opex) growing year-on-year at 15.67%, it may need to raise more cash over the next year. It currently has AU$6.75m in cash and short-term investments, however, opex (SG&A and one-year R&D) reached AU$7.08m in the latest twelve months. Even though this is analysis is fairly basic, and dorsaVi still can cut its overhead in the near future, or open a new line of credit instead of issuing new equity shares, the analysis still gives us an idea of the company’s timeline and when things will have to start changing, since its current operation is unsustainable.
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 hard to predict what will happen in the future and when. The most useful step is to assess company-specific issues dorsaVi may be facing and whether management guidance has steadily been met in the past. I suggest you continue to research dorsaVi to get a more holistic view of the stock by looking at:
- Financial Health: Is DVL’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.