Improvement in profitability and outperformance against the industry can be important characteristics in a stock for some investors. Below, I will assess Redstone Resources Limited’s (ASX:RDS) 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. Check out our latest analysis for Redstone Resources
Was RDS’s recent earnings decline indicative of a tough track record?
I look at 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 method enables me to analyze various companies on a more comparable basis, using the latest information. For Redstone Resources, its most recent trailing-twelve-month earnings is -AU$352.46K, which, relative to the prior year’s figure, has become more negative. Given that these values are somewhat myopic, I’ve estimated an annualized five-year figure for Redstone Resources’s net income, which stands at -AU$1.60M. This means that, despite the fact that net income is negative, it has become less negative over the years.
We can further evaluate Redstone Resources’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the past five years Redstone Resources has seen an annual decline in revenue of -39.38%, 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% over the past twelve months, and 13.17% over the past five years. This means whatever tailwind the industry is deriving benefit from, Redstone Resources has not been able to reap as much as its industry peers.
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 predict what will occur going forward, and when. The most insightful step is to assess company-specific issues Redstone Resources may be facing and whether management guidance has consistently been met in the past. I recommend you continue to research Redstone Resources to get a better picture of the stock by looking at:
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1. Financial Health: Is RDS’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.