Should Sportech PLC’s (LON:SPO) Recent Earnings Decline Worry You?

For investors with a long-term horizon, assessing earnings trend over time and against industry benchmarks is more valuable than looking at a single earnings announcement in one point in time. Investors may find my commentary, albeit very high-level and brief, on Sportech PLC (LSE:SPO) useful as an attempt to give more color around how Sportech is currently performing. See our latest analysis for Sportech

How Well Did SPO Perform?

I prefer to use data from the most recent 12 months, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This blend allows me to analyze different companies on a more comparable basis, using new information. For Sportech, its latest trailing-twelve-month earnings is -UK£22.78M, which, relative to last year’s level, has turned from positive to negative. Since these figures are somewhat short-term, I have determined an annualized five-year value for Sportech’s earnings, which stands at UK£2.29M.

LSE:SPO Income Statement Jun 6th 18
LSE:SPO Income Statement Jun 6th 18
We can further assess Sportech’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the past half a decade Sportech has seen an annual decline in revenue of -6.07%, on average. This adverse movement is a driver of the company’s inability to reach breakeven. Has the entire industry experienced this headwind? Looking at growth from a sector-level, the UK hospitality industry has been growing, albeit, at a muted single-digit rate of 3.07% over the prior year, and a substantial 11.13% over the last five years. This means that whatever near-term headwind the industry is facing, it’s hitting Sportech harder than its peers.

What does this mean?

Sportech’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. With companies that are currently loss-making, it is always hard to predict what will occur going forward, and when. The most useful step is to assess company-specific issues Sportech may be facing and whether management guidance has consistently been met in the past. You should continue to research Sportech to get a more holistic view of the stock by looking at:

  1. Financial Health: Is SPO’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 trailing twelve months from 31 December 2017. This may not be consistent with full year annual report figures.