When REACT Group plc (AIM:REAT) released its most recent earnings update (31 March 2017), I wanted to understand how these figures stacked up against its past performance. The two benchmarks I used were REACT Group’s average earnings over the past couple of years, and its industry performance. These are useful yardsticks to help me gauge whether or not REAT actually performed well. Below is a quick commentary on how I see REAT has performed. View our latest analysis for REACT Group
Could REAT beat the long-term trend and outperform its industry?
I prefer to use data from the most recent 12 months, 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 blend enables me to examine different stocks in a uniform manner using the latest information. For REACT Group, its latest earnings (trailing twelve month) is -UK£281.00K, which, relative to last year’s figure, has become less negative. Since these figures may be relatively short-term thinking, I’ve determined an annualized five-year value for REAT’s earnings, which stands at -UK£721.86K. This means that, although net income is negative, it has become less negative over the years.We can further evaluate REACT Group’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the last five years REACT Group’s top-line has increased by 14.09% on average, signalling that the company is in a high-growth phase with expenses shooting ahead of revenues, leading to annual losses. Eyeballing growth from a sector-level, the UK commercial services industry has been growing, albeit, at a muted single-digit rate of 7.38% over the prior twelve months, and 6.32% over the previous five years. This means although REACT Group is currently unprofitable, it may have been aided by industry tailwinds, moving earnings in the right direction.
What does this mean?
REACT Group’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 happen in the future and when. The most insightful step is to examine company-specific issues REACT Group may be facing and whether management guidance has consistently been met in the past. I suggest you continue to research REACT Group to get a better picture of the stock by looking at:
- 1. Financial Health: Is REAT’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.