Should You Be Concerned About Mount Gibson Iron Limited’s (ASX:MGX) -27.45% Earnings Decline?
After reading Mount Gibson Iron Limited’s (ASX:MGX) 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 MGX 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 Mount Gibson Iron
Was MGX’s recent earnings decline worse than the long-term trend and the industry?
I look at the ‘latest twelve-month’ data, which annualizes the most recent half-year data, or in some cases, the latest annual report is already the most recent financial year data. This blend enables me to examine different companies in a uniform manner using new information. For Mount Gibson Iron, its latest trailing-twelve-month earnings is AU$84.63M, which compared to the previous year’s level, has plunged by -27.45%. Since these values may be relatively myopic, I have calculated an annualized five-year figure for Mount Gibson Iron’s net income, which stands at AU$8.35M This suggests that even though earnings declined against last year, over a longer period of time, Mount Gibson Iron’s earnings have been rising on average.
What’s the driver of this growth? Let’s see whether it is merely attributable to industry tailwinds, or if Mount Gibson Iron has seen some company-specific growth. Even though both top-line and bottom-line growth rates in the past couple of years, were, on average, negative, earnings were more so. While this brought about a margin contraction, it has moderated Mount Gibson Iron’s earnings contraction. Eyeballing growth from a sector-level, the Australian metals and mining industry has been growing, albeit, at a unexciting single-digit rate of 8.07% in the prior twelve months, and a substantial 13.69% over the past half a decade. This means whatever uplift the industry is profiting from, Mount Gibson Iron has not been able to leverage it as much as its average peer.
What does this mean?
Though Mount Gibson Iron’s past data is helpful, it is only one aspect of my investment thesis. Companies that are profitable, but have volatile earnings, can have many factors impacting its business. You should continue to research Mount Gibson Iron to get a more holistic view of the stock by looking at the areas below. Just a heads up – to access some parts of the Simply Wall St research tool you might be asked to create a free account, but it takes just one click and the information they provide is definitely worth it in my opinion.
1. Future Outlook: What are well-informed industry analysts predicting for MGX’s future growth? Take a look at this free research report of analyst consensus for MGX’s outlook.
2. Financial Health: Is MGX’s operations financially sustainable? Balance sheets can be hard to analyze, which is why Simply Wall St does it for you. Check out important financial health checks here.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore a 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.