For investors with a long-term horizon, examining earnings trend over time and against industry peers is more insightful than looking at an earnings announcement in one point in time. Investors may find my commentary, albeit very high-level and brief, on Pearl Oriental Oil Limited (SEHK:632) useful as an attempt to give more color around how Pearl Oriental Oil is currently performing. View our latest analysis for Pearl Oriental Oil
How Well Did 632 Perform?
To account for any quarterly or half-yearly updates, I use data from the most recent 12 months, 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 blend allows me to assess various companies on a similar basis, using the most relevant data points. For Pearl Oriental Oil, its latest trailing-twelve-month earnings is -HK$87.4M, which, against the previous year’s level, has become less negative. Since these values may be somewhat myopic, I’ve computed an annualized five-year figure for 632’s net income, which stands at -HK$322.5M. This means even though net income is negative, it has become less negative over the years.
Additionally, we can evaluate Pearl Oriental Oil’s loss by researching what’s going on in the industry as well as within the company. Firstly, I want to quickly look into the line items. Revenue growth over the past few years has been negative at -43.10%. The key to profitability here is to make sure the company’s cost growth is well-managed. Scanning growth from a sector-level, the HK oil and gas industry has been growing average earnings growth of 54.48% over the previous year, . This is a a strong change from a volatile drop of -4.80% in the past few years. This means while Pearl Oriental Oil is presently loss-making, it may have only just gained from the recent industry expansion, moving earnings in the right direction.
What does this mean?
Though Pearl Oriental Oil’s past data is helpful, it is only one aspect of my investment thesis. Companies that incur net loss is always hard to predict what will occur going forward, and when. The most valuable step is to assess company-specific issues Pearl Oriental Oil may be facing and whether management guidance has consistently been met in the past. I suggest you continue to research Pearl Oriental Oil to get a more holistic view of the stock by looking at:
1. Financial Health: Is 632’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.