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Increase in profitability and industry-beating performance can be essential considerations in a stock for some investors. In this article, I will take a look at Encounter Resources Limited’s (ASX:ENR) track record on a high level, to give you some insight into how the company has been performing against its historical trend and its industry peers. View our latest analysis for Encounter Resources

Did ENR’s recent earnings growth beat the long-term trend and the industry?

I like to use data from the most recent 12 months, which either annualizes the most recent 6-month earnings update, or in some cases, the most recent annual report is already the latest available financial data. This allows me to assess various companies on a similar basis, using the latest information. For Encounter Resources, its most recent earnings (trailing twelve month) is -AU$1.22M, which, against the prior year’s level, has become less negative. Since these values may be relatively short-term thinking, I have estimated an annualized five-year figure for ENR’s earnings, which stands at -AU$1.69M. This means that, while net income is negative, it has become less negative over the years.

We can further analyze Encounter Resources’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the past half a decade Encounter Resources has seen an annual decline in revenue of -14.96%, on average. This adverse movement is a driver of the company’s inability to reach breakeven. Has the entire industry experienced this headwind? Looking at growth from a sector-level, the Australian metals and mining industry has been growing its average earnings by double-digit 15.45% in the past twelve months, and 13.22% over the past five. This shows that, although Encounter Resources is currently loss-making, it may have benefited from industry tailwinds, moving earnings into a more favorable position.

What does this mean?

While past data is useful, it doesn’t tell the whole story. Companies that incur net loss is always hard to envisage what will occur going forward, and when. The most useful step is to assess company-specific issues Encounter Resources may be facing and whether management guidance has steadily been met in the past. You should continue to research Encounter Resources to get a better picture of the stock by looking at:

• 1. Financial Health: Is ENR’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 December 2017. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.