After looking at Green Plains Inc’s (NASDAQ:GPRE) latest earnings announcement (31 March 2018), I found it useful to revisit the company’s performance in the past couple of years and assess this against the most recent figures. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is a crucial aspect. Below is a brief commentary on my key takeaways. View our latest analysis for Green Plains
Were GPRE’s earnings stronger than its past performances and the industry?
To account for any quarterly or half-yearly updates, I use 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 technique enables me to assess different companies on a more comparable basis, using the latest information. For Green Plains, its most recent trailing-twelve-month earnings is US$40.54M, which, in comparison to the previous year’s level, has increased by 29.92%. Since these values are fairly myopic, I have calculated an annualized five-year figure for GPRE’s net income, which stands at US$43.15M This shows that, despite the fact that earnings growth from last year was positive, over the past couple of years, Green Plains’s earnings have been deteriorating on average.
Why is this? Well, let’s look at what’s going on with margins and if the rest of the industry is feeling the heat. Revenue growth over the last couple of years, has been positive, yet earnings growth has been deteriorating. This means Green Plains has been ramping up expenses, which is hurting margins and earnings, and is not a sustainable practice. Viewing growth from a sector-level, the US oil and gas industry has been growing its average earnings by double-digit 25.04% over the prior twelve months, . This is a change from a volatile drop of -5.20% in the past few years. This means that, in the recent industry expansion, Green Plains is capable of leveraging this to its advantage.
What does this mean?
Green Plains’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Recent positive growth isn’t always indicative of a continued optimistic outlook. There may be variables that are influencing the industry as a whole, thus the high industry growth rate over the same time period. I suggest you continue to research Green Plains to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for GPRE’s future growth? Take a look at our free research report of analyst consensus for GPRE’s outlook.
- Financial Health: Is GPRE’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.
- 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 March 2018. 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.