For long-term investors, assessing earnings trend over time and against industry benchmarks is more beneficial than examining a single earnings announcement at a point in time. Investors may find my commentary, albeit very high-level and brief, on Encounter Resources Limited (ASX:ENR) useful as an attempt to give more color around how Encounter Resources is currently performing. Check out our latest analysis for Encounter Resources

Did ENR beat its long-term earnings growth trend and its industry?

I like to 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 technique enables me to examine different stocks on a similar basis, using new information. For Encounter Resources, its most recent twelve-month earnings is -A$1.3M, which, relative to last year’s level, has become less negative. Since these figures may be somewhat myopic, I’ve calculated an annualized five-year figure for Encounter Resources’s earnings, which stands at -A$1.9M. This shows that, while net income is negative, it has become less negative over the years.

Additionally, we can examine Encounter Resources’s loss by researching what’s going on in the industry as well as within the company. First, I want to briefly look into the line items. Revenue growth over the last few years has been negative at -9.31%. The key to profitability here is to make sure the company’s cost growth is well-controlled. Eyeballing growth from a sector-level, the Australian metals and mining industry has been growing, albeit, at a unexciting single-digit rate of 7.36% in the prior twelve months, and a substantial 11.48% over the past five. This means that, while Encounter Resources is presently unprofitable, it may have benefited from industry tailwinds, moving earnings in the right direction.

What does this mean?

Though Encounter 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 forecast what will happen in the future and when. The most insightful step is to assess company-specific issues Encounter Resources may be facing and whether management guidance has consistently been met in the past. You should continue to research Encounter Resources to get a better picture of the stock by looking at:

1. Financial Health: Is ENR’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.

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 last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. 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.