With A -7.9% Earnings Drop, Did Gusbourne PLC (LON:GUS) Really Underperform?

Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!

When Gusbourne PLC (LON:GUS) announced its most recent earnings (31 December 2018), I did two things: looked at its past earnings track record, then look at what is happening in the industry. Understanding how Gusbourne 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 GUS has performed.

Check out our latest analysis for Gusbourne

How Well Did GUS Perform?

GUS is loss-making, with the most recent trailing twelve-month earnings of -UK£1.8m (from 31 December 2018), which compared to last year has become more negative. Furthermore, the company’s loss seem to be growing over time, with the five-year earnings average of -UK£1.2m. Each year, for the past five years GUS has seen an annual increase in operating expense growth, outpacing revenue growth of 31%, on average. This adverse movement is a driver of the company’s inability to reach breakeven.

Inspecting growth from a sector-level, the UK beverage industry has been growing, albeit, at a unexciting single-digit rate of 7.6% over the previous year,

AIM:GUS Income Statement, July 4th 2019
AIM:GUS Income Statement, July 4th 2019

Since Gusbourne is loss-making, with operating expenses (opex) growing year-on-year at 22%, it may need to raise more cash over the next year. It currently has UK£1.3m in cash and short-term investments, however, opex (SG&A and one-year R&D) reached UK£2.2m in the latest twelve months. Although this is a relatively simplistic calculation, and Gusbourne may reduce its costs or raise debt capital instead of coming to equity markets, the outcome of this analysis still helps us understand how sustainable the Gusbourne’s operation is, and when things may have to change.

What does this mean?

Though Gusbourne’s past data is helpful, it is only one aspect of my investment thesis. With companies that are currently loss-making, it is always hard to forecast what will occur going forward, and when. The most useful step is to assess company-specific issues Gusbourne may be facing and whether management guidance has dependably been met in the past. You should continue to research Gusbourne to get a more holistic view of the stock by looking at:

  1. Financial Health: Are GUS’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 2018. This may not be consistent with full year annual report figures.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.