Does Spectrum ASA’s (OB:SPU) -32.34% Earnings Drop Reflect A Longer Term Trend?

When Spectrum ASA (OB:SPU) announced its most recent earnings (31 December 2017), I did two things: looked at its past earnings track record, then look at what is happening in the industry. Understanding how Spectrum 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 SPU has performed. Check out our latest analysis for Spectrum

Despite a decline, did SPU underperform the long-term trend and the industry?

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 technique enables me to examine many different companies in a uniform manner using the latest information. For Spectrum, its most recent bottom-line (trailing twelve month) is -US$26.84M, which compared to the previous year’s level, has become more negative. Since these figures may be fairly short-term, I’ve created an annualized five-year value for SPU’s net income, which stands at US$9.24M.

OB:SPU Income Statement Mar 22nd 18
OB:SPU Income Statement Mar 22nd 18
We can further analyze Spectrum’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the last five years Spectrum’s top-line has increased by a mere 7.26%, on average. The company’s inability to breakeven has been aided by the relatively flat top-line in the past. Viewing growth from a sector-level, the NO energy services industry has been increasing growth, more than doubling average earnings in the prior twelve months, . This is a a strong turnaround from a volatile drop of -4.61% in the last couple of years. This means that whatever tailwind the industry is benefiting from, Spectrum has not been able to realize the gains unlike its industry peers.

What does this mean?

Spectrum’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 hard to envisage what will happen in the future and when. The most valuable step is to assess company-specific issues Spectrum may be facing and whether management guidance has steadily been met in the past. I recommend you continue to research Spectrum to get a more holistic view of the stock by looking at:

  • 1. Future Outlook: What are well-informed industry analysts predicting for SPU’s future growth? Take a look at our free research report of analyst consensus for SPU’s outlook.
  • 2. Financial Health: Is SPU’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.
  • 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 December 2017. This may not be consistent with full year annual report figures.