Does Nexstim Plc's (HEL:NXTMH) -8.84% Earnings Drop Reflect A Longer Term Trend?

After reading Nexstim Plc's (HLSE:NXTMH) 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 NXTMH has outperformed, or whether it is simply riding an industry wave. Below is a brief commentary on my key takeaways. See our latest analysis for Nexstim

Was NXTMH's recent earnings decline indicative of a tough track record?

I like to use the ‘latest twelve-month’ data, 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 technique enables me to examine different companies on a more comparable basis, using new information. For Nexstim, its most recent bottom-line (trailing twelve month) is -€7.33M, which, in comparison to the previous year's figure, has become more negative. Given that these figures are relatively short-term thinking, I’ve computed an annualized five-year value for NXTMH's earnings, which stands at -€7.74M. This suggests that, despite the fact that net income is negative, it has become less negative over the years.

We can further assess Nexstim's loss by looking at what the industry has been experiencing over the past few years. Each year, for the past half a decade Nexstim's revenue growth has been fairly unexciting, with an annual growth rate of 1.89%, on average. The company's inability to breakeven has been aided by the relatively flat top-line in the past. Eyeballing growth from a sector-level, the FI medical equipment industry has been growing, albeit, at a muted single-digit rate of 7.74% over the prior year, and 8.44% over the last five years. This means whatever tailwind the industry is profiting from, Nexstim has not been able to realize the gains unlike its average peer.

What does this mean?

Nexstim'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 envisage what will occur going forward, and when. The most valuable step is to assess company-specific issues Nexstim may be facing and whether management guidance has steadily been met in the past. I suggest you continue to research Nexstim to get a more holistic view of the stock by looking at:

1. Financial Health: Is NXTMH’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. Valuation: What is NXTMH 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 NXTMH is currently mispriced by the market.
3. 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 31 December 2017. 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.