For investors with a long-term horizon, assessing earnings trend over time and against industry benchmarks is more valuable than looking at a single earnings announcement in one point in time. Investors may find my commentary, albeit very high-level and brief, on Digital Magics Sp.A. (BIT:DM) useful as an attempt to give more color around how Digital Magics is currently performing. View our latest analysis for Digital Magics
Was DM weak performance lately part of a long-term decline?
For the purpose of this commentary, I like 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 blend enables me to assess different stocks in a uniform manner using new information. For Digital Magics, its latest earnings (trailing twelve month) is -€6.83M, which, relative to the prior year’s figure, has become more negative. Since these values may be somewhat short-term, I’ve estimated an annualized five-year figure for Digital Magics’s net income, which stands at -€1.52M. This doesn’t look much better, since earnings seem to have gradually been getting more and more negative over time.
We can further examine Digital Magics’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the past five years Digital Magics’s revenue growth has been relatively soft, with an annual growth rate of -0.47%, on average. The company’s inability to breakeven has been aided by the relatively flat top-line in the past. Looking at growth from a sector-level, the IT capital markets industry has been growing its average earnings by double-digit 32.02% in the previous year, and 11.63% over the past five years. This shows that any tailwind the industry is profiting from, Digital Magics has not been able to realize the gains unlike its average peer.
What does this mean?
Digital Magics’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. With companies that are currently loss-making, it is always hard to predict what will happen in the future and when. The most useful step is to assess company-specific issues Digital Magics may be facing and whether management guidance has steadily been met in the past. I suggest you continue to research Digital Magics to get a more holistic view of the stock by looking at:
-
Financial Health: Is DM’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.
-
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.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.