When MSM Corporation International Limited (ASX:MSM) released its most recent earnings update (30 June 2017), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Understanding how MSM International performed requires a benchmark rather than trying to assess a standalone number at one point in time. Below is a quick commentary on how I see MSM has performed. View our latest analysis for MSM International
Was MSM’s recent earnings decline indicative of a tough track record?
I look at data from the most recent 12 months, which either annualizes the most recent 6-month earnings update, or in some cases, the most recent annual report is already the latest available financial data. This allows me to analyze various companies in a uniform manner using the latest information. For MSM International, the most recent earnings -A$13.0M, which, in comparison to last year’s figure, has become more negative. Since these values are relatively short-term thinking, I’ve estimated an annualized five-year value for MSM International’s net income, which stands at -A$8.4M. This doesn’t look much better, since earnings seem to have steadily been getting more and more negative over time.We can further evaluate MSM International’s loss by looking at what’s going on in the industry on top of within the company. First, I want to quickly look into the line items. Revenue growth over last couple of years has more than doubled, signalling that MSM International is in a high-growth phase with expenses racing ahead elevated top-line growth rates. Eyeballing growth from a sector-level, the Australian software industry has been growing its average earnings by double-digit 15.42% in the prior twelve months, and 12.47% over the past five years. This suggests that any uplift the industry is profiting from, MSM International has not been able to realize the gains unlike its average peer.
What does this mean?
MSM International’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 predict what will occur going forward, and when. The most useful step is to assess company-specific issues MSM International may be facing and whether management guidance has dependably been met in the past. You should continue to research MSM International to get a more holistic view of the stock by looking at:
1. Financial Health: Is MSM’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.