When Niko Resources Ltd (TSX:NKO) released its most recent earnings update (31 December 2017), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Being able to interpret how well Niko Resources has done so far requires weighing its performance against a benchmark, rather than looking at a standalone number at a point in time. In this article, I’ve summarized the key takeaways on how I see NKO has performed. Check out our latest analysis for Niko Resources
Was NKO’s recent earnings decline indicative of a tough track record?
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 blend enables me to assess various companies on a similar basis, using the latest information. For Niko Resources, its most recent trailing-twelve-month earnings is -US$32.19M, which compared to the prior year’s level, has turned from positive to negative. Given that these values are relatively nearsighted, I’ve estimated an annualized five-year value for NKO’s earnings, which stands at -US$217.70M. This shows that, while net income is negative, it has become less negative over the years.We can further analyze Niko Resources’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the past half a decade Niko Resources has seen an annual decline in revenue of -31.81%, on average. This adverse movement is a driver of the company’s inability to reach breakeven. Has the entire industry experienced this headwind? Inspecting growth from a sector-level, the Canadian oil and gas industry has been growing, albeit, at a unexciting single-digit rate of 7.63% over the past twelve months, and a flatter -0.49% over the past five years. This means whatever tailwind the industry is deriving benefit from, Niko Resources has not been able to leverage it as much as its industry peers.
What does this mean?
Though Niko Resources’s past data is helpful, it is only one aspect of my investment thesis. Companies that incur net loss is always difficult to envisage what will happen in the future and when. The most insightful step is to examine company-specific issues Niko Resources may be facing and whether management guidance has regularly been met in the past. I recommend you continue to research Niko Resources to get a more holistic view of the stock by looking at:
- 1. Financial Health: Is NKO’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 NKO 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 NKO 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.