When Orthocell Limited (ASX:OCC) announced its most recent earnings (30 June 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 Orthocell 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 OCC has performed. See our latest analysis for OCC
Was OCC’s recent earnings decline worse than the long-term trend and the industry?
I like to use data from the most recent 12 months, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This blend allows me to assess many different companies on a more comparable basis, using new information. Orthocell’s latest twelve-month earnings -A$4.2M, which compared to the prior year’s level, has become more negative. Since these values are fairly short-term, I’ve determined an annualized five-year figure for OCC’s net income, which stands at -A$3.0M. This doesn’t look much better, since earnings seem to have steadily been getting more and more negative over time.
Additionally, we can evaluate Orthocell’s loss by looking at what has been happening in the industry on top of within the company. Initially, I want to briefly look into the line items. Revenue growth over last few years has been somewhat unexciting, remaining flat on average at -0.40%. Since top-line growth is also pretty stale the key to profitability going forward would be managing cost growth rates. Inspecting growth from a sector-level, the Australian biotechnology industry has been growing, albeit, at a subdued single-digit rate of 9.22% over the previous year, and a substantial 31.57% over the past five years. This means that whatever uplift the industry is enjoying, Orthocell has not been able to gain as much as its industry peers.
What does this mean?
Though Orthocell’s past data is helpful, it is only one aspect of my investment thesis. With companies that are currently loss-making, it is always hard to forecast what will occur going forward, and when. The most insightful step is to examine company-specific issues Orthocell may be facing and whether management guidance has consistently been met in the past. I suggest you continue to research Orthocell to get a better picture of the stock by looking at:
1. Financial Health: Is OCC’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.