Should You Be Concerned With Finzsoft Solutions Limited’s (NZE:FIN) -91.75% Earnings Drop?

After reading Finzsoft Solutions Limited’s (NZSE:FIN) most recent earnings announcement (31 December 2017), I found it useful to look back at how the company has performed in the past and compare this against the latest numbers. As a long term investor, I pay close attention to earnings trend, rather than the figures published at one point in time. I also compare against an industry benchmark to check whether Finzsoft Solutions’s performance has been impacted by industry movements. In this article I briefly touch on my key findings. View our latest analysis for Finzsoft Solutions

Was FIN weak performance lately part of a long-term decline?

I look at data from the most recent 12 months, which annualizes the most recent half-year data, or in some cases, the latest annual report is already the most recent financial year data. This allows me to analyze different companies on a more comparable basis, using new information. For Finzsoft Solutions, its latest trailing-twelve-month earnings is NZ$160.90K, which, in comparison to the previous year’s figure, has declined by a non-trivial -91.75%. Given that these values are fairly nearsighted, I have created an annualized five-year figure for FIN’s earnings, which stands at NZ$813.98K This doesn’t look much better, as earnings seem to have gradually been declining over the longer term.

NZSE:FIN Income Statement Mar 27th 18
NZSE:FIN Income Statement Mar 27th 18
What could be happening here? Well, let’s look at what’s occurring with margins and whether the entire industry is experiencing the hit as well. Over the past few years, revenue growth has fallen behind which suggests that Finzsoft Solutions’s bottom line has been driven by unmaintainable cost-cutting. Scanning growth from a sector-level, the NZ software industry has been enduring severe headwinds over the previous year, leading to an average earnings drop of -80.55%. This is a momentous change, given that the industry has constantly been delivering a a notable growth of 23.73% in the last five years. This suggests that whatever recent headwind the industry is facing, it’s hitting Finzsoft Solutions harder than its peers.

What does this mean?

While past data is useful, it doesn’t tell the whole story. Typically companies that face a drawn out period of reduction in earnings are undergoing some sort of reinvestment phase Although, if the entire industry is struggling to grow over time, it may be a sign of a structural change, which makes Finzsoft Solutions and its peers a riskier investment. You should continue to research Finzsoft Solutions to get a better picture of the stock by looking at:

  • 1. Financial Health: Is FIN’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.