After looking at Energy Metals Limited’s (ASX:EME) latest earnings announcement (30 June 2017), I found it useful to revisit the company’s performance in the past couple of years and assess this against the most recent figures. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is a crucial aspect. Below is a brief commentary on my key takeaways. View our latest analysis for Energy Metals

Despite a decline, did EME underperform the long-term trend and the industry?

I prefer to use the ‘latest twelve-month’ data, 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 allows me to examine different stocks in a uniform manner using new information. For Energy Metals, its latest twelve-month earnings is -A$0.8M, which, in comparison to last year’s figure, has become more negative. Since these figures may be somewhat nearsighted, I’ve computed an annualized five-year figure for EME’s net income, which stands at -A$0.3M. This doesn’t look much better, as earnings seem to have consistently been getting more and more negative over time.

Additionally, we can assess Energy Metals’s loss by researching what’s going on in the industry as well as within the company. Firstly, I want to briefly look into the line items. Revenue growth over the last couple of years has been negative at -42.18%. The key to profitability here is to make sure the company’s cost growth is well-managed. Scanning growth from a sector-level, the Australian oil and gas industry has been enduring some headwinds in the prior twelve months, leading to an average earnings drop of -25.18%. This is a significant change, given that the industry has constantly been delivering a a notable growth of 28.17% in the previous few years. This means that whatever recent headwind the industry is facing, it’s hitting Energy Metals harder than its peers.

What does this mean?

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

1. Financial Health: Is EME’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.