When Summit Resources Limited (ASX:SMM) released its most recent earnings update (31 December 2017), I wanted to understand how these figures stacked up against its past performance. The two benchmarks I used were Summit Resources’s average earnings over the past couple of years, and its industry performance. These are useful yardsticks to help me gauge whether or not SMM actually performed well. Below is a quick commentary on how I see SMM has performed. See our latest analysis for Summit Resources
How Well Did SMM Perform?
For the most up-to-date info, I use the ‘latest twelve-month’ data, 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 technique allows me to assess various companies in a uniform manner using the latest information. For Summit Resources, its most recent earnings (trailing twelve month) is -AU$313.00K, which, in comparison to the previous year’s level, has become less negative. Given that these values may be relatively nearsighted, I’ve created an annualized five-year value for Summit Resources’s earnings, which stands at -AU$616.35K. This suggests that, although net income is negative, it has become less negative over the years.
We can further evaluate Summit Resources’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the past five years Summit Resources has seen an annual decline in revenue of -29.12%, on average. This adverse movement is a driver of the company’s inability to reach breakeven. Has the entire industry experienced this headwind? Scanning growth from a sector-level, the Australian oil and gas industry has been growing growth, more than doubling average earnings in the previous year, and a substantial 13.22% over the previous five years. This shows that whatever uplift the industry is benefiting from, Summit Resources has not been able to reap as much as its industry peers.
What does this mean?
Though Summit 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 hard to envisage what will happen in the future and when. The most valuable step is to examine company-specific issues Summit Resources may be facing and whether management guidance has consistently been met in the past. You should continue to research Summit Resources to get a more holistic view of the stock by looking at:
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1. Financial Health: Is SMM’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.
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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.