Should You Be Content With Lithium Consolidated Mineral Exploration Limited’s (ASX:LI3) Earnings Growth?
In this commentary, I will examine Lithium Consolidated Mineral Exploration Limited’s (ASX:LI3) latest earnings update (31 December 2017) and compare these figures against its performance over the past couple of years, as well as how the rest of the metals and mining industry performed. As an investor, I find it beneficial to assess LI3’s trend over the short-to-medium term in order to gauge whether or not the company is able to meet its goals, and ultimately sustainably grow over time. See our latest analysis for Lithium Consolidated Mineral Exploration
Did LI3 beat its long-term earnings growth trend and its industry?
For the purpose of this commentary, 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 technique allows me to analyze different companies in a uniform manner using the latest information. For Lithium Consolidated Mineral Exploration, its most recent bottom-line (trailing twelve month) is -AU$1.15M, which, in comparison to the previous year’s level, has become less negative. Since these values may be relatively short-term thinking, I’ve computed an annualized five-year value for Lithium Consolidated Mineral Exploration’s earnings, which stands at -AU$1.56M. This suggests that, while net income is negative, it has become less negative over the years.
We can further evaluate Lithium Consolidated Mineral Exploration’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the past half a decade Lithium Consolidated Mineral Exploration’s top-line more than doubled on average, implying that the business is in a high-growth phase with expenses racing ahead revenues, leading to annual losses. Inspecting growth from a sector-level, the Australian metals and mining industry has been growing its average earnings by double-digit 15.38% over the past twelve months, and 12.74% over the previous five years. This means although Lithium Consolidated Mineral Exploration is presently unprofitable, it may have gained from industry tailwinds, moving earnings in the right direction.
What does this mean?
Lithium Consolidated Mineral Exploration’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Companies that incur net loss is always hard to predict what will happen in the future and when. The most useful step is to examine company-specific issues Lithium Consolidated Mineral Exploration may be facing and whether management guidance has steadily been met in the past. You should continue to research Lithium Consolidated Mineral Exploration to get a better picture of the stock by looking at:
1. Financial Health: Is LI3’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 LI3 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 LI3 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 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.
