For investors, increase in profitability and industry-beating performance can be essential considerations in an investment. Below, I will examine Hugoton Royalty Trust’s (NYSE:HGT) track record on a high level, to give you some insight into how the company has been performing against its long term trend and its industry peers. View our latest analysis for Hugoton Royalty Trust
Were HGT’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 latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This blend allows me to assess different stocks on a similar basis, using the most relevant data points. For Hugoton Royalty Trust, its most recent trailing-twelve-month earnings is $4.6M, which, in comparison to the prior year’s level, has increased by over 100%. Since these figures may be somewhat short-term, I have created an annualized five-year value for HGT’s net income, which stands at $28.2M. This means although earnings growth from last year was positive, over time, Hugoton Royalty Trust’s earnings have been falling on average.
Why is this? Well, let’s look at what’s transpiring with margins and if the whole industry is feeling the heat. Although revenue growth over the last couple of years, has been negative, earnings growth has been deteriorating by even more, implying that Hugoton Royalty Trust has been growing its expenses. This harms margins and earnings, and is not a sustainable practice. Eyeballing growth from a sector-level, the US oil and gas industry has been growing its average earnings by double-digit 18.47% over the past year, . This is a change from a volatile drop of -7.52% in the previous few years. This suggests that, in the recent industry expansion, Hugoton Royalty Trust is capable of leveraging this to its advantage.
What does this mean?
Though Hugoton Royalty Trust’s past data is helpful, it is only one aspect of my investment thesis. Recent positive growth doesn’t necessarily mean it’s onwards and upwards for the company. There may be variables that are influencing the entire industry hence the high industry growth rate over the same time period. You should continue to research Hugoton Royalty Trust to get a more holistic view of the stock by looking at:
1. Financial Health: Is HGT’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 HGT 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 HGT 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 30 September 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.