With A -21.16% Earnings Drop, Did Barra Resources Limited (ASX:BAR) Really Underperform?
After reading Barra Resources Limited’s (ASX:BAR) latest earnings update (31 December 2017), I found it beneficial to look back at how the company has performed in the past and compare this against the most recent numbers. As a long-term investor I tend to pay attention to earnings trend, rather than a single number at one point in time. I also like to compare against an industry benchmark to understand whether BAR has outperformed, or whether it is simply riding an industry wave. Below is a brief commentary on my key takeaways. See our latest analysis for Barra Resources
Commentary On BAR’s Past Performance
I like to use data from the most recent 12 months, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This technique allows me to assess many different companies on a more comparable basis, using new information. For Barra Resources, its latest trailing-twelve-month earnings is -AU$1.60M, which, against the previous year’s figure, has become more negative. Given that these figures are relatively myopic, I’ve estimated an annualized five-year value for BAR’s net income, which stands at -AU$884.98K. This doesn’t look much better, as earnings seem to have steadily been getting more and more negative over time.
We can further analyze Barra Resources’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the past five years Barra Resources has seen an annual decline in revenue of -16.02%, on average. This adverse movement is a driver of the company’s inability to reach breakeven. Has the entire industry experienced this headwind? Inspecting growth from a sector-level, the Australian metals and mining industry has been growing its average earnings by double-digit 15.38% in the prior year, and 13.04% over the last five years. This suggests that whatever tailwind the industry is benefiting from, Barra Resources has not been able to realize the gains unlike its average peer.
What does this mean?
Though Barra Resources’s past data is helpful, it is only one aspect of my investment thesis. Companies that incur net loss is always difficult to forecast what will happen in the future and when. The most valuable step is to examine company-specific issues Barra Resources may be facing and whether management guidance has steadily been met in the past. I suggest you continue to research Barra Resources to get a more holistic view of the stock by looking at:
1. Financial Health: Is BAR’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 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.
