Should Forbidden Technologies plc's (LON:FBT) Recent Earnings Worry You?

For long-term investors, assessing earnings trend over time and against industry benchmarks is more beneficial than examining a single earnings announcement at a point in time. Investors may find my commentary, albeit very high-level and brief, on Forbidden Technologies plc (LON:FBT) useful as an attempt to give more color around how Forbidden Technologies is currently performing. See our latest analysis for Forbidden Technologies

Commentary On FBT's Past Performance

FBT is loss-making, with the most recent trailing twelve-month earnings of -UK£2.34m (from 31 December 2017), which compared to last year has become less negative. Furthermore, the company's loss seem to be growing over time, with the five-year earnings average of -UK£1.65m. Each year, for the past five years FBT has seen an annual increase in operating expense growth, outpacing revenue growth of 4.35%, on average. This adverse movement is a driver of the company's inability to reach breakeven. Scanning growth from a sector-level, the UK software industry has been growing its average earnings by double-digit 22.02% in the past twelve months, and 14.19% over the last five years. This suggests that any tailwind the industry is enjoying, Forbidden Technologies has not been able to leverage it as much as its average peer.

Given that Forbidden Technologies is loss-making, with operating expenses (opex) growing year-on-year at 9.27%, it may need to raise more cash over the next year. It currently has UK£1.75m in cash and short-term investments, however, opex (SG&A and one-year R&D) reached UK£2.41m in the latest twelve months. Although this is a relatively simplistic calculation, and Forbidden Technologies may reduce its costs or raise debt capital instead of coming to equity markets, the analysis still gives us an idea of the company’s timeline and when things will have to start changing, since its current operation is unsustainable.

What does this mean?

While past data is useful, it 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 Forbidden Technologies may be facing and whether management guidance has steadily been met in the past. I suggest you continue to research Forbidden Technologies to get a better picture of the stock by looking at:

1. Financial Health: Is FBT’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.

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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.