After reading 8common Limited’s (ASX:8CO) latest earnings update (31 December 2017), I found it beneficial to look back at how the company has performed in the past and compare this against the most recent numbers. As a long-term investor I tend to pay attention to earnings trend, rather than a single number at one point in time. I also like to compare against an industry benchmark to understand whether 8CO has outperformed, or whether it is simply riding an industry wave. Below is a brief commentary on my key takeaways. Check out our latest analysis for 8common
How Did 8CO’s Recent Performance Stack Up Against Its Past?
8CO is loss-making, with the most recent trailing twelve-month earnings of -AU$596.73k (from 31 December 2017), which compared to last year has become less negative. Furthermore, the company’s loss seem to be growing over time, with the five-year earnings average of -AU$826.37k. Each year, for the past five years 8CO has seen an annual increase in operating expense growth, outpacing revenue growth of 2.30%, on average. This adverse movement is a driver of the company’s inability to reach breakeven. Inspecting growth from a sector-level, the Australian software industry has been growing its average earnings by double-digit 13.93% over the past year, and 15.93% over the past half a decade. This suggests that, though 8common is currently unprofitable, it may have been aided by industry tailwinds, moving earnings into a more favorable position.
Given that 8common is not profitable, even if operating expenses (SG&A and one-year R&D) continues to fall at previous year’s rate of -4.90%, the company’s current cash level (AU$255.64k) will still be insufficient to cover its expenses in the upcoming year. This is not a great sign in terms of operations and cash management. Even though this is analysis is fairly basic, and 8common still can cut its overhead further, or open a new line of credit instead of issuing new equity shares, the outcome of this 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 difficult to envisage what will happen in the future and when. The most insightful step is to assess company-specific issues 8common may be facing and whether management guidance has dependably been met in the past. You should continue to research 8common to get a more holistic view of the stock by looking at:
- Financial Health: Is 8CO’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.
- Valuation: What is 8CO 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 8CO is currently mispriced by the market.
- 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.