When Iron Road Limited (ASX:IRD) announced its most recent earnings (30 June 2017), I did two things: looked at its past earnings track record, then look at what is happening in the industry. Understanding how Iron Road 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 IRD has performed. View our latest analysis for Iron Road
Did IRD’s recent EPS Growth beat the long-term trend and the industry?
For the most up-to-date info, I 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 blend enables me to assess many different companies on a similar basis, using the latest information. Iron Road’s latest twelve-month earnings -A$4M, which, relative to the prior year’s level, has become less negative. Given that these figures may be fairly short-term, I have created an annualized five-year figure for IRD’s earnings, which stands at -A$5M. This means that, despite the fact that net income is negative, it has become less negative over the years.
We can further assess Iron Road’s loss by researching what’s going on in the industry on top of within the company. Initially, I want to briefly look into the line items. Revenue growth over last couple of years has been negative at -15.92%. The key to profitability here is to make sure the company’s cost growth is well-managed. Viewing growth from a sector-level, the Australian metals and mining industry has been growing, albeit, at a muted single-digit rate of 6.76% over the previous twelve months, and a substantial 11.86% over the previous five years. This suggests that, though Iron Road is currently loss-making, it may have benefited from industry tailwinds, moving earnings in the right direction.
What does this mean?
Iron Road’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. With companies that are currently loss-making, it is always difficult to envisage what will occur going forward, and when. The most useful step is to assess company-specific issues Iron Road may be facing and whether management guidance has regularly been met in the past. You should continue to research Iron Road to get a more holistic view of the stock by looking at:
1. Financial Health: Is IRD’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.