After reading Central Petroleum Limited’s (ASX:CTP) most recent earnings announcement (31 December 2017), I found it useful to look back at how the company has performed in the past 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 a crucial aspect. Below is a brief commentary on my key takeaways. Check out our latest analysis for Central Petroleum

How Well Did CTP Perform?

For the purpose of this commentary, I like to use the ‘latest twelve-month’ data, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This method allows me to analyze various companies on a more comparable basis, using the latest information. For Central Petroleum, its latest earnings (trailing twelve month) is -AU$22.50M, which compared to the prior year’s figure, has become more negative. Given that these values may be relatively myopic, I have created an annualized five-year figure for Central Petroleum’s net income, which stands at -AU$20.75M. This doesn’t seem to paint a better picture, as earnings seem to have consistently been getting more and more negative over time.

We can further evaluate Central Petroleum’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the past half a decade Central Petroleum’s top-line has risen by 43.55% on average, indicating that the company is in a high-growth phase with expenses shooting ahead of revenues, leading to annual losses. Eyeballing growth from a sector-level, the Australian oil and gas industry has been ramping up growth, more than doubling average earnings over the previous year, and a strong 12.36% over the past five years. This means any tailwind the industry is benefiting from, Central Petroleum has not been able to leverage it as much as its industry peers.

What does this mean?

Though Central Petroleum’s past data is helpful, it is only one aspect of my investment thesis. Companies that incur net loss is always hard to predict what will occur going forward, and when. The most useful step is to assess company-specific issues Central Petroleum may be facing and whether management guidance has dependably been met in the past. I suggest you continue to research Central Petroleum to get a more holistic view of the stock by looking at: