When Purifloh Limited (ASX:PO3) released its most recent earnings update (31 December 2017), I wanted to understand how these figures stacked up against its past performance. The two benchmarks I used were Purifloh’s average earnings over the past couple of years, and its industry performance. These are useful yardsticks to help me gauge whether or not PO3 actually performed well. Below is a quick commentary on how I see PO3 has performed. Check out our latest analysis for Purifloh
Were PO3’s earnings stronger than its past performances and the industry?
For the purpose of this commentary, I like to use the ‘latest twelve-month’ data, which either annualizes the most recent 6-month earnings update, or in some cases, the most recent annual report is already the latest available financial data. This blend allows me to examine various companies on a more comparable basis, using the most relevant data points. For Purifloh, its most recent earnings (trailing twelve month) is -AU$260.03K, which, in comparison to last year’s level, has become less negative. Since these figures may be somewhat myopic, I have estimated an annualized five-year figure for PO3’s net income, which stands at -AU$2.57M. This means although net income is negative, it has become less negative over the years.
We can further evaluate Purifloh’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the past half a decade Purifloh has seen an annual decline in revenue of -32.01%, on average. This adverse movement is a driver of the company’s inability to reach breakeven. Has the entire industry experienced this headwind? Scanning growth from a sector-level, the Australian water utilities industry has been growing, albeit, at a subdued single-digit rate of 8.82% in the prior twelve months, and 7.33% over the past half a decade. This suggests that, though Purifloh is currently running a loss, it may have benefited from industry tailwinds, moving earnings towards to right direction.
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 predict what will occur going forward, and when. The most insightful step is to assess company-specific issues Purifloh may be facing and whether management guidance has consistently been met in the past. You should continue to research Purifloh to get a better picture of the stock by looking at:
- Financial Health: Is PO3’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.
- 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.
NB: Figures in this article are calculated using data from the trailing twelve months from 31 December 2017. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.