In this commentary, I will examine VDM Group Limited’s (ASX:VMG) 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 construction and engineering industry performed. As an investor, I find it beneficial to assess VMG’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. See our latest analysis for VMG
How Well Did VMG Perform?
For the most up-to-date info, I use the ‘latest twelve-month’ data, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This enables me to assess many different companies in a uniform manner using the latest information. For VDM Group, the most recent twelve-month earnings -A$3.9M, which, in comparison to the previous year’s figure, has become less negative. Given that these values may be fairly short-term, I’ve calculated an annualized five-year value for VDM Group’s net income, which stands at -A$24.1M. This shows that, although net income is negative, it has become less negative over the years.
We can further evaluate VDM Group’s loss by looking at 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 last couple of years has been negative at -53.73%. The key to profitability here is to make sure the company’s cost growth is well-controlled. Scanning growth from a sector-level, the Australian construction and engineering industry has been growing its average earnings by double-digit 21.67% in the previous year, . This is a turnaround from a volatile drop of -4.95% in the past couple of years. This suggests that whatever tailwind the industry is benefiting from, VDM Group has not been able to leverage it as much as its industry peers.
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 forecast what will occur going forward, and when. The most valuable step is to assess company-specific issues VDM Group may be facing and whether management guidance has regularly been met in the past. I recommend you continue to research VDM Group to get a more holistic view of the stock by looking at:
1. Financial Health: Is VMG’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.