When RingCentral Inc (NYSE:RNG) announced its most recent earnings (31 December 2017), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Being able to interpret how well RingCentral has done so far requires weighing its performance against a benchmark, rather than looking at a standalone number at a point in time. In this article, I’ve summarized the key takeaways on how I see RNG has performed. Check out our latest analysis for RingCentral
How RNG fared against its long-term earnings performance and its industry
I prefer to 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 method enables me to assess different stocks in a uniform manner using new information. For RingCentral, its latest trailing-twelve-month earnings is -US$26.14M, which, in comparison to the previous year’s level, has become less negative. Since these figures may be relatively myopic, I have computed an annualized five-year value for RNG’s net income, which stands at -US$35.91M. This suggests that, even though net income is negative, it has become less negative over the years.We can further evaluate RingCentral’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the last five years RingCentral’s top-line has risen by 27.02% on average, signalling that the company is in a high-growth phase with expenses shooting ahead of revenues, leading to annual losses. Eyeballing growth from a sector-level, the US software industry has been growing its average earnings by double-digit 11.76% in the previous twelve months, and 14.18% over the past half a decade. This means that whatever tailwind the industry is benefiting from, RingCentral has not been able to gain as much as its industry peers.
What does this mean?
Though RingCentral’s past data is helpful, it is only one aspect of my investment thesis. With companies that are currently loss-making, it is always difficult to forecast what will occur going forward, and when. The most insightful step is to assess company-specific issues RingCentral may be facing and whether management guidance has dependably been met in the past. You should continue to research RingCentral to get a better picture of the stock by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for RNG’s future growth? Take a look at our free research report of analyst consensus for RNG’s outlook.
- 2. Financial Health: Is RNG’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.