After reading Rakon Limited’s (NZSE:RAK) 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 RAK 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 Rakon
How Well Did RAK Perform?
I prefer 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 allows me to examine various companies on a similar basis, using the most relevant data points. Rakon’s latest twelve-month earnings -NZ$7.0M, which, against the prior year’s figure, has become less negative. Since these values may be fairly short-term, I have computed an annualized five-year figure for Rakon’s earnings, which stands at -NZ$10.7M. This means that, even though net income is negative, it has become less negative over the years.
Additionally, we can analyze Rakon’s loss by researching what’s going on in the industry on top of within the company. Initially, I want to quickly look into the line items. Revenue growth over the past couple of years has been negative at -10.94%. The key to profitability here is to make sure the company’s cost growth is well-managed. Inspecting growth from a sector-level, the NZ electronic equipment, instruments and components industry has been growing its average earnings by double-digit 17.56% in the past twelve months, and 10.90% over the past five years. This shows that, though Rakon is presently running a loss, it may have benefited from industry tailwinds, moving earnings in the right direction.
What does this mean?
Though Rakon’s past data is helpful, it is only one aspect of my investment thesis. Companies that incur net loss is always difficult to envisage what will occur going forward, and when. The most insightful step is to assess company-specific issues Rakon may be facing and whether management guidance has steadily been met in the past. I recommend you continue to research Rakon to get a better picture of the stock by looking at:
1. Financial Health: Is RAK’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.