After reading GI Dynamics Inc’s (ASX:GID) latest earnings update (30 September 2017), I found it beneficial to look back at how the company has performed in the past and compare this against the most recent numbers. As a long-term investor I tend to pay attention to earnings trend, rather than a single number at one point in time. I also like to compare against an industry benchmark to understand whether GID has outperformed, or whether it is simply riding an industry wave. Below is a brief commentary on my key takeaways. Check out our latest analysis for GI Dynamics
Were GID’s earnings stronger than its past performances and the industry?
To account for any quarterly or half-yearly updates, 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 method allows me to analyze various companies on a more comparable basis, using the most relevant data points. GI Dynamics’s most recent twelve-month earnings -$11.3M, which, in comparison to last year’s level, has become less negative. Since these values are somewhat short-term thinking, I have determined an annualized five-year value for GID’s earnings, which stands at -$28.3M. This shows that, even though net income is negative, it has become less negative over the years.
We can further assess GI Dynamics’s loss by looking at what’s going on in the industry on top of within the company. Firstly, I want to quickly look into the line items. Revenue growth over the past couple of years has grown by a mere 7.67%. Since top-line growth is also pretty stale the key to profitability moving forward would be controlling costs. Looking at growth from a sector-level, the Australian medical equipment industry has been multiplying growth, more than doubling average earnings over the past twelve months, and a notable 16.24% over the previous five years. This means that whatever tailwind the industry is deriving benefit from, GI Dynamics has not been able to realize the gains unlike its industry peers.
What does this mean?
GI Dynamics’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 forecast what will happen in the future and when. The most valuable step is to assess company-specific issues GI Dynamics may be facing and whether management guidance has consistently been met in the past. I suggest you continue to research GI Dynamics to get a more holistic view of the stock by looking at: