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VirnetX Holding Corp (NYSEMKT:VHC): Does The -12% Earnings Drop Reflect A Longer Term Trend?

Simply Wall St

Measuring VirnetX Holding Corp's (NYSEMKT:VHC) track record of past performance is a useful exercise for investors. It enables us to understand whether or not the company has met or exceed expectations, which is an insightful signal for future performance. Today I will assess VHC's recent performance announced on 31 March 2019 and weigh these figures against its long-term trend and industry movements.

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See our latest analysis for VirnetX Holding

Was VHC weak performance lately part of a long-term decline?

VHC is loss-making, with the most recent trailing twelve-month earnings of -US$23.4m (from 31 March 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$23.2m. Each year, for the past five years VHC has seen an annual decline in revenue of -20%, on average. This adverse movement is a driver of the company's inability to reach breakeven.

Looking at growth from a sector-level, the US software industry has been growing its average earnings by double-digit 45% in the past twelve months,

AMEX:VHC Income Statement, May 17th 2019

Given that VirnetX Holding is not profitable, even if operating expenses (SG&A and one-year R&D) continues to fall at previous year’s rate of -5.2%, the company’s current cash level (US$8.3m) will still be insufficient to cover its expenses in the upcoming year. This is not a great sign in terms of operations and cash management. Even though this is analysis is fairly basic, and VirnetX Holding still can cut its overhead further, or open a new line of credit instead of issuing new equity shares, 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?

VirnetX Holding'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 forecast what will happen in the future and when. The most useful step is to assess company-specific issues VirnetX Holding may be facing and whether management guidance has regularly been met in the past. I suggest you continue to research VirnetX Holding to get a more holistic view of the stock by looking at:

  1. Financial Health: Are VHC’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.
  2. 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 March 2019. This may not be consistent with full year annual report figures.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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.