Yahoo Finance With A -4.4% Earnings Drop, Did ClearStar, Inc. (LON:CLSU) Really Underperform?
In this commentary, I will examine ClearStar, Inc.'s (AIM:CLSU) latest earnings update (31 December 2019) and compare these figures against its performance over the past couple of years, as well as how the rest of the professional services industry performed. As an investor, I find it beneficial to assess CLSU’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.
View our latest analysis for ClearStar
How Did CLSU's Recent Performance Stack Up Against Its Past?
CLSU is loss-making, with the most recent trailing twelve-month earnings of -US$1.4m (from 31 December 2019), which compared to last year has become more negative. However, the company's loss seem to be contracting over the medium term, with the five-year earnings average of -US$1.6m. Each year, for the past five years CLSU has seen an annual increase in operating expense growth, outpacing revenue growth of 12%, on average. This adverse movement is a driver of the company's inability to reach breakeven.
Eyeballing growth from a sector-level, the UK professional services industry has been growing its average earnings by double-digit 10% over the past year, and 14% over the last five years. This growth is a median of profitable companies of 25 Professional Services companies in GB including Impellam Group, Hydrogen Group and K3 Capital Group. This means whatever uplift the industry is benefiting from, ClearStar has not been able to reap as much as its average peer.
Given that ClearStar is loss-making, with operating expenses (opex) growing year-on-year at 5.6%, it may need to raise more cash over the next year. It currently has US$1.8m in cash and short-term investments, however, opex (SG&A and one-year R&D) reachedUS$13m in the latest twelve months. Even though this is analysis is fairly basic, and ClearStar still can cut its overhead in the near future, or open a new line of credit instead of issuing new equity shares, the outcome of this analysis still gives us an idea of the company’s timeline and when things will have to start changing, since its current operation is unsustainable.
What does this mean?
ClearStar's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. With companies that are currently loss-making, it is always difficult to envisage what will occur going forward, and when. The most insightful step is to assess company-specific issues ClearStar may be facing and whether management guidance has consistently been met in the past. I suggest you continue to research ClearStar to get a better picture of the stock by looking at:
Financial Health: Are CLSU’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 2019. This may not be consistent with full year annual report figures.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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