Should DCM Financial Services Limited's (NSE:DCMFINSERV) Recent Earnings Decline Worry You?

When DCM Financial Services Limited (NSEI:DCMFINSERV) announced its most recent earnings (31 March 2017), I did two things: looked at its past earnings track record, then look at what is happening in the industry. Understanding how DCM Financial Services 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 DCMFINSERV has performed. View our latest analysis for DCM Financial Services

Was DCMFINSERV's weak performance lately a part of a long-term decline?

For the most up-to-date info, I 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 enables me to analyze many different companies in a uniform manner using new information. For DCM Financial Services, its most recent earnings (trailing twelve month) is ₹17.08M, which, in comparison to the prior year's figure, has declined by -18.53%. Given that these figures are somewhat myopic, I have calculated an annualized five-year value for DCMFINSERV's earnings, which stands at ₹3.45M This shows that even though earnings growth was negative from the prior year, over the past couple of years, DCM Financial Services's earnings have been rising on average.

What's enabled this growth? Let's take a look at whether it is only due to industry tailwinds, or if DCM Financial Services has experienced some company-specific growth. Over the past couple of years, DCM Financial Services top-line expansion has overtaken earnings and the growth rate of expenses. Though this resulted in a margin contraction, it has softened DCM Financial Services's earnings contraction. Inspecting growth from a sector-level, the IN consumer finance industry has been growing its average earnings by double-digit 13.97% in the past twelve months, and a less exciting 7.85% over the previous five years. This shows that any uplift the industry is deriving benefit from, DCM Financial Services has not been able to reap as much as its industry peers.

What does this mean?

DCM Financial Services's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. Companies that are profitable, but have unpredictable earnings, can have many factors influencing its business. I suggest you continue to research DCM Financial Services to get a better picture of the stock by looking at:

• 1. Financial Health: Is DCMFINSERV’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 DCMFINSERV 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 DCMFINSERV 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 March 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.