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Are Earnings Prospects Improving For Loss-Making Oro Verde Limited’s (ASX:OVL)?

Understanding how Oro Verde Limited (ASX:OVL) is performing as a company requires looking at more than just a years’ earnings. Today I will run you through a basic sense check to gain perspective on how Oro Verde is doing by comparing its latest earnings with its long-term trend as well as the performance of its metals and mining industry peers. View our latest analysis for Oro Verde

Did OVL beat its long-term earnings growth trend and its industry?

For the most up-to-date info, I use data from the most recent 12 months, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This blend allows me to examine various companies on a more comparable basis, using the latest information. For Oro Verde, its latest twelve-month earnings is -A$0.9M, which, relative to the previous year’s figure, has become less negative. Since these figures may be somewhat short-term thinking, I’ve estimated an annualized five-year value for Oro Verde’s earnings, which stands at -A$2.5M. This shows that, even though net income is negative, it has become less negative over the years.

ASX:OVL Income Statement Dec 27th 17
ASX:OVL Income Statement Dec 27th 17

We can further examine Oro Verde’s loss by looking at what has been happening in the industry as well as within the company. Firstly, I want to briefly look into the line items. Revenue growth over the last few years has more than doubled, implying that Oro Verde is in a high-growth period with expenses racing ahead elevated top-line growth rates, leading to yearly losses. Eyeballing growth from a sector-level, the Australian metals and mining industry has been growing, albeit, at a subdued single-digit rate of 7.36% over the past year, and 8.50% over the previous few years. This shows that, despite the fact that Oro Verde is currently running a loss, it may have gained from industry tailwinds, moving earnings towards to right direction.

What does this mean?

Oro Verde’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. With companies that are currently loss-making, it is always hard to envisage what will happen in the future and when. The most insightful step is to examine company-specific issues Oro Verde may be facing and whether management guidance has consistently been met in the past. I recommend you continue to research Oro Verde to get a more holistic view of the stock by looking at:

1. Financial Health: Is OVL’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.

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