Long time investor who is finally decided to stop following blindly and actually understand what he is buying. Thanks all to the incredible info that is on this board.
I was looking at SWKS and have made myself a table of earnings and revenue. I noticed that despite the impressive YOY growth that there was a trend that seemed concerning (unless I am totally misunderstanding the data my table is putting out - which is not only possible but probable.
I noted that:
9 month EPS growth rate was 77
6 months EPS Growth was 72 and 3 months was 61.
I also noted that when plotting out the Q3:Q3 growth rate it was 88 and Q2:Q2 was 85 and finally Q1:Q1 (most recent) growth was 61.
Does this also not imply an earnings growth DECELERATION.
Then I thought to myself well perhaps more of earning were being invested in R&D and so I looked at revenue and saw the exact trend going on. I had a look through the earnings conference and could not find any explanation.
Craig
5 Likes
Craig,
I think you are looking at this in to short of a time period. Go back to 2012 and look at the earnings and Revenue. A pattern starts to reveal itself, the fourth quarter, next quarter is always the largest. Also if you look at the earnings YoY they are consistently climbing. You can plot this out for every quarter and you will see a nice increase in earnings. If you look at just the last year, you will come up with an incomplete conclusion IMHO.
Andy
2 Likes
“I think you are looking at this in to short of a time period. Go back to 2012 and look at the earnings and Revenue. A pattern starts to reveal itself, the fourth quarter, next quarter is always the largest. Also if you look at the earnings YoY they are consistently climbing. You can plot this out for every quarter and you will see a nice increase in earnings. If you look at just the last year, you will come up with an incomplete conclusion IMHO”
Andy thanks for your reply and I do agree that it is a very short period of time. At the same time a lot of the parameters we use look at in evaluating stocks are very short terms (1YPEG for example, revenue acceleration etc) and so I am wondering how one can separate an inconsequential blip to a worrisome trend caught too late.
Craig
1 Like
At the same time a lot of the parameters we use look at in evaluating stocks are very short terms (1YPEG for example, revenue acceleration etc) and so I am wondering how one can separate an inconsequential blip to a worrisome trend caught too late.
That is a very good point Craig. I think you have to read the Conference Calls and the financials to see if their is a problem. While Swks is coming down in acceleration it was growing EPS YoY at 47% in Q42014 64% in Q12105 77% n Q22015 and 76% in Q32015. So while it has come down slightly you can see it is still in the high 70’s. But it is great to watch this and I agree with you Craig, when is the right time to leave this stock and search for another? Well, My answer would be if I had another stock that is growing their earning at a higher rate than this stock. Or if on their conference call they stated the next few quarters were going to be investment quarters or flat. Another good reason is if they bought another company that was out of their wheelhouse and they could not integrate them into their business or it caused problems in their business reducing their growth rate.
I haven’t had a chance to look into their recent acquisition but the market doesn’t seem to be to happy with it today. But I have a hard time selling a stock that is sitting at a P/E of 15.50 and growing their earnings YoY in the high 70’s. Now if it’s earnings growth comes down to the high 30’s this stock will still get cut but with the P/E at 15.50 I still wouldn’t have a problem holding it.
One more thing Craig, These are just my thoughts and we are having a discussion that hopefully we both can learn something. Do not take anything I say as Gospel. But I use the 1ypeg not as a sign that a stock is a buy but as a tool to weed out other companies so that I can look deeper into a smaller pool of stocks. If it has a great 1ypeg I can look at the company, read its conference calls, look at its earning report, and possibly choose it as an investment. The thing I have learned about using it, although it might say a company is a great investment, it doesn’t always turn out to be true. We all have limited time and the 1YPEG just helps to trim some of the fat before looking at the prime.
Andy
6 Likes