Today I will examine Cross Timbers Royalty Trust’s (NYSE:CRT) latest earnings update (30 September 2017) and compare these figures against its performance over the past couple of years, in addition to how the rest of CRT’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. Check out our latest analysis for Cross Timbers Royalty Trust
Was CRT’s recent earnings decline indicative of a tough track record?
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 enables me to assess various companies on a more comparable basis, using the latest information. For Cross Timbers Royalty Trust, its most recent trailing-twelve-month earnings is $6.3M, which, in comparison to the prior year’s level, has plunged by -2.78%. Since these values are relatively myopic, I’ve calculated an annualized five-year figure for CRT’s earnings, which stands at $12.7M. This doesn’t seem to paint a better picture, as earnings seem to have gradually been declining over time.
Why could this be happening? Well, let’s look at what’s occurring with margins and whether the rest of the industry is facing the same headwind. Although revenue growth over the last few years, has been negative, earnings growth has been deteriorating by even more, meaning Cross Timbers Royalty Trust has been increasing its expenses. This hurts margins and earnings, and is not a sustainable practice. Scanning growth from a sector-level, the US oil and gas industry has been growing its average earnings by double-digit 18.47% in the past year, . This is a change from a volatile drop of -7.52% in the previous couple of years. This shows that, in the recent industry expansion, Cross Timbers Royalty Trust has not been able to reap as much as its average peer.
What does this mean?
Though Cross Timbers Royalty Trust’s past data is helpful, it is only one aspect of my investment thesis. In some cases, companies that experience a drawn out period of diminishing earnings are undergoing some sort of reinvestment phase in order to keep up with the latest industry disruption and growth. I suggest you continue to research Cross Timbers Royalty Trust to get a more holistic view of the stock by looking at:
1. Financial Health: Is CRT’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. Valuation: What is CRT 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 CRT is currently mispriced by the market.
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 30 September 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.