After looking at Acacia Coal Limited’s (ASX:AJC) latest earnings update (31 December 2017), I found it helpful to revisit the company’s performance in the past couple of years and compare this against the latest numbers. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is an important aspect. In this article I briefly touch on my key findings. See our latest analysis for Acacia Coal
Was AJC’s recent earnings decline indicative of a tough track record?
To account for any quarterly or half-yearly updates, I use data from the most recent 12 months, which annualizes the most recent half-year data, or in some cases, the latest annual report is already the most recent financial year data. This method enables me to analyze many different companies on a similar basis, using the most relevant data points. For Acacia Coal, its most recent trailing-twelve-month earnings is -AU$2.39M, which, in comparison to the prior year’s figure, has become more negative. Given that these values are somewhat myopic, I have computed an annualized five-year value for Acacia Coal’s net income, which stands at -AU$3.34M. This means that, despite the fact that net income is negative, it has become less negative over the years.
We can further examine Acacia Coal’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the last five years Acacia Coal has seen an annual decline in revenue of -18.13%, on average. This adverse movement is a driver of the company’s inability to reach breakeven. Has the entire industry experienced this headwind? Viewing growth from a sector-level, the Australian oil and gas industry has been increasing growth, more than doubling average earnings over the past year, and a strong 13.22% over the past five years. This shows that whatever uplift the industry is enjoying, Acacia Coal has not been able to reap as much as its average peer.
What does this mean?
Though Acacia Coal’s past data is helpful, it is only one aspect of my investment thesis. With companies that are currently loss-making, it is always hard to envisage what will occur going forward, and when. The most insightful step is to assess company-specific issues Acacia Coal may be facing and whether management guidance has steadily been met in the past. I suggest you continue to research Acacia Coal to get a better picture of the stock by looking at: