In this commentary, I will examine Recce Limited’s (ASX:RCE) latest earnings update (30 June 2017) and compare these figures against its performance over the past couple of years, as well as how the rest of the pharmaceuticals industry performed. As an investor, I find it beneficial to assess RCE’s trend over the short-to-medium term in order to gauge whether or not the company is able to meet its goals, and ultimately sustainably grow over time. Check out our latest analysis for Recce
How Did RCE’s Recent Performance Stack Up Against Its Past?
To account for any quarterly or half-yearly updates, I use the ‘latest twelve-month’ data, 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 technique allows me to analyze different companies in a uniform manner using the most relevant data points. For Recce, its latest earnings is -A$3.0M, which, against the previous year’s figure, has become less negative. Since these values may be fairly myopic, I’ve created an annualized five-year value for Recce’s net income, which stands at -A$2.4M. This suggests that, Recce has historically performed better than recently, though it seems like earnings are now heading back in the right direction again.
Additionally, we can analyze Recce’s loss by researching what has been happening in the industry as well as within the company. First, I want to quickly look into the line items. Revenue growth over the past couple of years has increased by 21.66%, indicating that Recce is in a high-growth period with expenses racing ahead elevated top-line growth rates, leading to yearly losses. Inspecting growth from a sector-level, the Australian pharmaceuticals industry has been growing its average earnings by double-digit 10.76% over the past year, and 10.67% over the previous few years. This means despite the fact that Recce is currently loss-making, it may have gained from industry tailwinds, moving earnings towards to right direction.
What does this mean?
While past data is useful, it doesn’t tell the whole story. With companies that are currently loss-making, it is always hard to predict what will occur going forward, and when. The most valuable step is to assess company-specific issues Recce may be facing and whether management guidance has steadily been met in the past. You should continue to research Recce to get a better picture of the stock by looking at:
1. Financial Health: Is RCE’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.