Does Redstone Resources Limited’s (ASX:RDS) Past Performance Indicate A Stronger Future?
After reading Redstone Resources Limited’s (ASX:RDS) latest earnings update (30 June 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 RDS has outperformed, or whether it is simply riding an industry wave. Below is a brief commentary on my key takeaways. Check out our latest analysis for Redstone Resources
Were RDS’s earnings stronger than its past performances and the industry?
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 allows me to analyze different stocks on a more comparable basis, using the latest information. For Redstone Resources, the most recent bottom-line -A$0M, which, against the previous year’s level, has become less negative. Since these values are fairly nearsighted, I’ve computed an annualized five-year figure for Redstone Resources’s earnings, which stands at -A$2M. This means while net income is negative, it has become less negative over the years.
Additionally, we can evaluate Redstone Resources’s loss by looking at what has been happening in the industry as well as within the company. Initially, I want to quickly look into the line items. Revenue growth over past couple of years has been negative at -18.04%. The key to profitability here is to make sure the company’s cost growth is well-controlled. Looking at growth from a sector-level, the Australian metals and mining industry has been growing, albeit, at a unexciting single-digit rate of 6.76% in the previous year, and a substantial 11.86% over the past five years. This means that, although Redstone Resources is presently loss-making, it may have been aided by industry tailwinds, moving earnings towards to right direction.
What does this mean?
While past data is useful, it doesn’t tell the whole story. With companies that are currently loss-making, it is always difficult to envisage what will happen in the future and when. The most insightful step is to assess company-specific issues Redstone Resources may be facing and whether management guidance has consistently been met in the past. I recommend you continue to research Redstone Resources to get a better picture of the stock by looking at:
1. Financial Health: Is RDS’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.
