Understanding how Litigation Capital Management Limited (ASX:LCA) is performing as a company requires looking at more than just a years’ earnings. Today I will run you through a basic sense check to gain perspective on how Litigation Capital Management is doing by comparing its latest earnings with its long-term trend as well as the performance of its diversified financial services industry peers. View our latest analysis for Litigation Capital Management
How Did LCA’s Recent Performance Stack Up Against Its Past?
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 technique allows me to assess many different companies on a similar basis, using the most relevant data points. Litigation Capital Management’s most recent bottom-line -A$2.3M, which, against the prior year’s level, has become more negative. Since these figures may be relatively short-term, I have calculated an annualized five-year value for Litigation Capital Management’s earnings, which stands at -A$2.8M. This shows that, although net income is negative, it has become less negative over the years.
We can further evaluate Litigation Capital Management’s loss by researching what has been happening in the industry on top of within the company. Firstly, I want to briefly look into the line items. Revenue growth over past couple of years has more than doubled, signalling that Litigation Capital Management is in a high-growth phase with expenses shooting ahead of high top-line growth rates. Eyeballing growth from a sector-level, the Australian diversified financial services industry has been enduring some headwinds over the prior year, leading to an average earnings drop of -9.41%. This is a significant change, given that the industry has been delivering a positive rate of 8.10%, on average, over the past couple of years. This shows that whatever near-term headwind the industry is experiencing, the impact on Litigation Capital Management has been softer relative to its peers.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Companies that incur net loss is always hard to envisage what will happen in the future and when. The most insightful step is to examine company-specific issues Litigation Capital Management may be facing and whether management guidance has steadily been met in the past. I recommend you continue to research Litigation Capital Management to get a better picture of the stock by looking at: