After looking at ADX Energy Ltd’s (ASX:ADX) 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. Check out our latest analysis for ADX Energy
Was ADX’s recent earnings decline worse than the long-term trend and the industry?
To account for any quarterly or half-yearly updates, I use the ‘latest twelve-month’ data, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This enables me to assess different stocks in a uniform manner using the latest information. For ADX Energy, the most recent bottom-line -A$2.8M, which, relative to the previous year’s figure, has become more negative. Since these values are fairly nearsighted, I’ve calculated an annualized five-year value for ADX Energy’s earnings, which stands at -A$3.9M. This suggests that, while net income is negative, it has become less negative over the years.
We can further evaluate ADX Energy’s loss by researching what’s going on in the industry along with within the company. Initially, I want to briefly look into the line items. Revenue growth over past few years has been negative at -39.35%. The key to profitability here is to make sure the company’s cost growth is well-controlled. Viewing growth from a sector-level, the Australian oil, gas and consumable fuels industry has been amplifying average earnings growth of 57.50% in the prior year, and a more muted 5.14% over the past couple of years. This suggests that whatever uplift the industry is deriving benefit from, ADX Energy has not been able to realize the gains unlike its industry peers.
What does this mean?
Though ADX Energy’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 predict what will happen in the future and when. The most valuable step is to assess company-specific issues ADX Energy may be facing and whether management guidance has steadily been met in the past. I suggest you continue to research ADX Energy to get a better picture of the stock by looking at:
1. Financial Health: Is ADX’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.