Should Energy World Corporation Ltd’s (ASX:EWC) Earnings Decline In Recent Times Worry You?
Today I will take a look at Energy World Corporation Ltd’s (ASX:EWC) most recent earnings update (30 June 2017) and compare these latest figures against its performance over the past few years, as well as how the rest of the independent power and renewable electricity producers industry performed. As an investor, I find it beneficial to assess EWC’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. View our latest analysis for Energy World
How Did EWC’s Recent Performance Stack Up Against Its Past?
I like to use data from the most recent 12 months, 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 allows me to assess different companies on a similar basis, using the most relevant data points. For Energy World, the most recent earnings is A$26M, which, against last year’s level, has dropped by -7.56%. Since these values are relatively nearsighted, I’ve calculated an annualized five-year figure for Energy World’s net income, which stands at A$23M. This shows that although earnings growth was negative from the previous year, over the past couple of years, Energy World’s earnings have been growing on average.
What’s enabled this growth? Let’s see if it is merely because of an industry uplift, or if Energy World has seen some company-specific growth. The climb in earnings seems to be supported by a strong top-line increase outpacing its growth rate of expenses. Though this has caused a margin contraction, it has made Energy World more profitable. Viewing growth from a sector-level, the Australian independent power and renewable electricity producers industry has been growing, albeit, at a muted single-digit rate of 5.88% over the prior year, and a substantial 21.57% over the previous five years. This means any uplift the industry is deriving benefit from, Energy World has not been able to leverage it as much as its average peer.
What does this mean?
Though Energy World’s past data is helpful, it is only one aspect of my investment thesis. Companies are profitable, but have volatile earnings, can have many factors influencing its business. I suggest you continue to research Energy World to get a better picture of the stock by looking at:
1. Financial Health: Is EWC’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.
