Its been a very tough year for investors in Blinkx (LSE: BLNX), with the companys share price falling by a whopping 81% since the turn of the year. Compare this to Micro Focus (LSE: MCRO), which has seen its share price rise by 33%, and its clear which company youd rather have owned during 2014.
However, it could be well worth holding on to Micro Focus moving forward, and it could continue to outperform sector peer, Blinkx, over the long run. Heres why.
When it comes to consistent growth, Micro Focus excels. Over the past five years it has grown earnings in four of them, with the one blip being 2011 when net profit fell by only 4%. Indeed, over the five year period Micro Focus has increased its bottom line at an average rate of 20% per annum, which is hugely impressive both on an absolute and on a relative basis.
Blinkx, meanwhile, has had a more turbulent five years. Although 2013 was an exceptional year that saw earnings increase by 94%, the other years have been rather disappointing. For example, the company made a loss in 2010 and only increased the bottom line by 1% last year. When it comes to track records of growth, then, Micro Focus seems to be far more appealing than its sector peer.
Furthermore, Micro Focus is expected to grow its bottom line by 8% in each of the next two years. While only slightly above the wider markets forecast growth rate, the company enjoys a large degree of recurring revenue and this means that its earnings profile is relatively stable. In other words, we can have a large degree of confidence that the company will deliver as expected.
Meanwhile, Blinkx is forecast to post substantial declines in earnings over the next two years. Its bottom line is due to drop by 27% in the current year and by a further 24% next year. For a company that is considered a pure play growth stock, this is unlikely to stimulate the share price in the short run.
Micro Focus currently yields an impressive 2.8% from dividends that are set to grow by 27% next year. This means that shares could be yielding as much as 3.6% next year, with the merger with Attachmate bringing on stream more recurring revenues, that bodes well for the income prospects for the combined business.
However, Blinkx does not pay a dividend and has no plans to. Indeed, with earnings set to fall at a rapid rate over the next couple of years, dividends could prove to be a long way off. For this reason, as well as its turbulent track record and declining earnings, Blinkx could continue to underperform its sector peer, Micro Focus, moving forward.
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Peter Stephens does not own shares in Micro Focus or Blinkx. The Motley Fool has recommended shares in Micro Focus.