When Energy One Limited (ASX:EOL) announced its most recent earnings (31 December 2017), I did two things: looked at its past earnings track record, then look at what is happening in the industry. Understanding how Energy One performed requires a benchmark rather than trying to assess a standalone number at one point in time. Below is a quick commentary on how I see EOL has performed. See our latest analysis for Energy One

Commentary On EOL’s Past Performance

I use data from the most recent 12 months, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This technique enables me to assess various companies on a similar basis, using the most relevant data points. For Energy One, its most recent earnings (trailing twelve month) is AU$762.18K, which compared to last year’s figure, has escalated by a non-trivial 81.14%. Given that these figures may be fairly myopic, I’ve estimated an annualized five-year figure for EOL’s earnings, which stands at AU$74.66K This means generally, Energy One has been able to consistently improve its bottom line over the past few years as well.

How has it been able to do this? Let’s take a look at if it is solely attributable to an industry uplift, or if Energy One has seen some company-specific growth. In the last couple of years, Energy One expanded its bottom line faster than revenue by efficiently controlling its costs. This has caused a margin expansion and profitability over time. Looking at growth from a sector-level, the Australian software industry has been growing its average earnings by double-digit 13.49% in the prior twelve months, and 15.31% over the last five years. This suggests that whatever tailwind the industry is benefiting from, Energy One is capable of amplifying this to its advantage.

What does this mean?

Energy One’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. While Energy One has a good historical track record with positive growth and profitability, there’s no certainty that this will extrapolate into the future. You should continue to research Energy One to get a more holistic view of the stock by looking at:

• 1. Financial Health: Is EOL’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. Valuation: What is EOL worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether EOL is currently mispriced by the market.

• 3. 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.