After reading Strike Resources Limited’s (ASX:SRK) most recent earnings announcement (30 June 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 Strike Resources

Was SRK’s weak performance lately a part of a long-term decline?

For the purpose of this commentary, I like to use the ‘latest twelve-month’ data, 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 blend enables me to analyze different stocks in a uniform manner using new information. For Strike Resources, its most recent bottom-line is -A$1.1M, which, in comparison to the previous year’s figure, has become more negative. Given that these values are fairly short-term thinking, I have created an annualized five-year value for SRK’s net income, which stands at -A$10.0M. This suggests that, though net income is negative, it has become less negative over the years.

We can further examine Strike Resources’s loss by looking at what has been happening in the industry as well as within the company. Initially, I want to quickly look into the line items. Revenue growth over the last few years has been negative at -21.92%. The key to profitability here is to make sure the company’s cost growth is well-controlled. Scanning growth from a sector-level, the Australian metals and mining industry has been growing, albeit, at a unexciting single-digit rate of 7.36% over the previous twelve months, and a substantial 11.48% over the previous five years. This means any uplift the industry is profiting from, Strike Resources has not been able to reap as much as its average peer.

What does this mean?

Though Strike Resources’s past data is helpful, it is only one aspect of my investment thesis. With companies that are currently loss-making, it is always difficult to predict what will happen in the future and when. The most insightful step is to examine company-specific issues Strike Resources may be facing and whether management guidance has steadily been met in the past. I recommend you continue to research Strike Resources to get a better picture of the stock by looking at: