Should You Be Concerned With Lithium Australia NL’s (ASX:LIT) -52.45% Earnings Drop?
Assessing Lithium Australia NL’s (ASX:LIT) past track record of performance is an insightful exercise for investors. It allows us to reflect on whether or not the company has met or exceed expectations, which is a great indicator for future performance. Today I will assess LIT’s recent performance announced on 31 December 2017 and evaluate these figures to its long-term trend and industry movements. View our latest analysis for Lithium Australia
Was LIT’s weak performance lately a part of a long-term decline?
I look at 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 method allows me to analyze many different companies on a similar basis, using the most relevant data points. For Lithium Australia, its latest trailing-twelve-month earnings is -AU$3.91M, which, relative to the previous year’s figure, has become more negative. Given that these figures are fairly short-term, I’ve estimated an annualized five-year value for LIT’s net income, which stands at -AU$2.30M. This doesn’t look much better, since earnings seem to have consistently been getting more and more negative over time.
We can further assess Lithium Australia’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the past five years Lithium Australia’s top-line has grown by 11.86% on average, implying that the company is in a high-growth period with expenses racing ahead revenues, leading to annual losses. Looking at growth from a sector-level, the Australian metals and mining industry has been growing its average earnings by double-digit 15.38% over the previous twelve months, and 12.92% over the previous five years. This shows that whatever uplift the industry is enjoying, Lithium Australia has not been able to realize the gains unlike its industry peers.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Companies that incur net loss is always difficult to predict what will occur going forward, and when. The most useful step is to examine company-specific issues Lithium Australia may be facing and whether management guidance has consistently been met in the past. I recommend you continue to research Lithium Australia to get a more holistic view of the stock by looking at:
1. Financial Health: Is LIT’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.
