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Today I will examine Terra Nitrogen Company LP.’s (DB:NRT) latest earnings update (31 December 2017) and compare these figures against its performance over the past couple of years, in addition to how the rest of NRT’s industry performed. As a long-term investor, I find it useful to analyze the company’s trend over time in order to estimate whether or not the company is able to meet its goals, and eventually grow sustainably over time. See our latest analysis for Terra Nitrogen Company
Did NRT perform worse than its track record and industry?
For the purpose of this commentary, I like to use 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 assess different companies in a uniform manner using new information. For Terra Nitrogen Company, its latest trailing-twelve-month earnings is US$111.30M, which compared to the prior year’s figure, has fallen by -21.56%. Since these values are somewhat nearsighted, I have created an annualized five-year figure for NRT’s net income, which stands at US$230.21M This doesn’t look much better, as earnings seem to have gradually been deteriorating over the longer term.
What could be happening here? Well, let’s take a look at what’s going on with margins and if the rest of the industry is experiencing the hit as well. Although revenue growth over the last few years, has been negative, earnings growth has been deteriorating by even more, implying that Terra Nitrogen Company has been ramping up its expenses. This hurts margins and earnings, and is not a sustainable practice. Viewing growth from a sector-level, the DE chemicals industry has been growing its average earnings by double-digit 11.76% in the previous year, and a more subdued 6.69% over the past five. This means that whatever uplift the industry is profiting from, Terra Nitrogen Company has not been able to reap as much as its average peer.
What does this mean?
Though Terra Nitrogen Company’s past data is helpful, it is only one aspect of my investment thesis. Usually companies that experience a drawn out period of diminishing earnings are going through some sort of reinvestment phase in order to keep up with the recent industry growth and disruption. I recommend you continue to research Terra Nitrogen Company to get a better picture of the stock by looking at:
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1. Financial Health: Is NRT’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. Valuation: What is NRT worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether NRT is currently mispriced by the market.
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3. 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.