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When Environmental Clean Technologies Limited (ASX:ECT) released its most recent earnings update (30 June 2018), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Understanding how Environmental Clean Technologies performed requires a benchmark rather than trying to assess a standalone number at one point in time. Below is a quick commentary on how I see ECT has performed.
See our latest analysis for Environmental Clean Technologies
How Well Did ECT Perform?
ECT is loss-making, with the most recent trailing twelve-month earnings of -AU$5.1m (from 30 June 2018), which compared to last year has become more negative. Furthermore, the company’s loss seem to be growing over time, with the five-year earnings average of -AU$4.4m. Each year, for the past five years ECT has seen an annual decline in revenue of -30%, on average. This adverse movement is a driver of the company’s inability to reach breakeven.
Viewing growth from a sector-level, the Australian commercial services industry has been growing its average earnings by double-digit 43% over the past year,
Given that Environmental Clean Technologies is currently unprofitable, with operating expenses (opex) growing year-on-year at 5.7%, it may need to raise more cash over the next year. It currently has AU$612k in cash and short-term investments, however, opex (SG&A and one-year R&D) reached AU$4.3m in the latest twelve months. Although this is a relatively simplistic calculation, and Environmental Clean Technologies may reduce its costs or raise debt capital instead of coming to equity markets, the outcome of this analysis still helps us understand how sustainable the Environmental Clean Technologies’s operation is, and when things may have to change.
What does this mean?
Though Environmental Clean Technologies’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 envisage what will occur going forward, and when. The most insightful step is to assess company-specific issues Environmental Clean Technologies may be facing and whether management guidance has steadily been met in the past. I suggest you continue to research Environmental Clean Technologies to get a more holistic view of the stock by looking at:
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Financial Health: Are ECT’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.
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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.