Yahoo Finance Was Five Star Senior Living Inc.'s (NASDAQ:FVE) Earnings Decline Part Of A Broader Industry Downturn?
When Five Star Senior Living Inc. (NasdaqCM:FVE) announced its most recent earnings (30 September 2019), I did two things: looked at its past earnings track record, then look at what is happening in the industry. Understanding how Five Star Senior Living 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 FVE has performed.
See our latest analysis for Five Star Senior Living
Despite a decline, did FVE underperform the long-term trend and the industry?
FVE is loss-making, with the most recent trailing twelve-month earnings of -US$59.8m (from 30 September 2019), 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 -US$36.0m. Each year, for the past five years FVE has seen an annual increase in operating expense growth, outpacing revenue growth of 0.03%, on average. This adverse movement is a driver of the company's inability to reach breakeven.
Eyeballing growth from a sector-level, the US healthcare industry has been growing, albeit, at a subdued single-digit rate of 9.7% in the prior twelve months, and a substantial 14% over the past five. This growth is a median of profitable companies of 25 Healthcare companies in US including Magellan Health, Apollo Medical Holdings and American Shared Hospital Services. This shows that any tailwind the industry is profiting from, Five Star Senior Living has not been able to reap as much as its industry peers.
Since Five Star Senior Living is loss-making, with operating expenses (opex) growing year-on-year at 1.1%, it may need to raise more cash over the next year. It currently has US$49m in cash and short-term investments, however, opex (SG&A and one-year R&D) reachedUS$260m in the latest twelve months. Even though this is analysis is fairly basic, and Five Star Senior Living still can cut its overhead in the near future, or raise debt capital instead of coming to equity markets, the 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?
While past data is useful, it 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 useful step is to assess company-specific issues Five Star Senior Living may be facing and whether management guidance has steadily been met in the past. I recommend you continue to research Five Star Senior Living to get a more holistic view of the stock by looking at:
Financial Health: Are FVE’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 30 September 2019. This may not be consistent with full year annual report figures.
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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. Thank you for reading.
