In this commentary, I will examine Sabine Royalty Trust’s (NYSE:SBR) latest earnings update (31 December 2017) and compare these figures against its performance over the past couple of years, as well as how the rest of the oil and gas industry performed. As an investor, I find it beneficial to assess SBR’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. See our latest analysis for Sabine Royalty Trust
Were SBR’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 either annualizes the most recent 6-month earnings update, or in some cases, the most recent annual report is already the latest available financial data. This allows me to assess different companies in a uniform manner using new information. For Sabine Royalty Trust, its latest earnings (trailing twelve month) is US$34.73M, which, in comparison to the previous year’s figure, has risen by 26.40%. Since these figures may be somewhat nearsighted, I have created an annualized five-year figure for SBR’s net income, which stands at US$48.96M This means that, while earnings growth from last year was positive, over time, Sabine Royalty Trust’s earnings have been falling on average.
Why is this? Well, let’s take a look at what’s going on with margins and if the rest of the industry is facing the same headwind. Although revenue growth over the last few years, has been negative, earnings growth has been declining by even more, suggesting that Sabine Royalty Trust has been growing its expenses. This harms 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 22.64% over the prior year, . This is a change from a volatile drop of -8.35% in the last couple of years. This means that, in the recent industry expansion, Sabine Royalty Trust is capable of leveraging this to its advantage.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Recent positive growth doesn’t necessarily mean it’s onwards and upwards for the company. There may be variables that are influencing the industry as a whole, hence the high industry growth rate over the same period of time. I suggest you continue to research Sabine Royalty Trust to get a more holistic view of the stock by looking at:
- 1. Financial Health: Is SBR’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 SBR 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 SBR 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 31 December 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.