For long-term investors, assessing earnings trend over time and against industry benchmarks is more beneficial than examining a single earnings announcement at a point in time. Investors may find my commentary, albeit very high-level and brief, on Petsec Energy Ltd (ASX:PSA) useful as an attempt to give more color around how Petsec Energy is currently performing. View our latest analysis for Petsec Energy
Did PSA’s recent earnings growth beat the long-term trend and the industry?
I prefer 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 blend enables me to examine various companies on a similar basis, using new information. For Petsec Energy, its latest earnings (trailing twelve month) is -$10.0M, which, relative to the previous year’s figure, has become less negative. Since these figures are somewhat myopic, I’ve created an annualized five-year value for Petsec Energy’s net income, which stands at -$10.3M. This means that, despite the fact that net income is negative, it has become less negative over the years.We can further analyze Petsec Energy’s loss by researching what’s going on in the industry as well as within the company. First, I want to quickly look into the line items. Revenue growth over the last few years has been negative at -34.41%. The key to profitability here is to make sure the company’s cost growth is well-managed. Looking at growth from a sector-level, the Australian oil and gas industry has been enduring some headwinds in the past twelve months, leading to an average earnings drop of -25.18%. This is a major change, given that the industry has constantly been delivering a a solid growth of 28.17% in the past five years. This suggests that although Petsec Energy is currently loss-making, any recent headwind the industry is experiencing, Petsec Energy is relatively better-cushioned than its peers.
What does this mean?
Petsec Energy’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Companies that incur net loss is always difficult to envisage what will occur going forward, and when. The most useful step is to examine company-specific issues Petsec Energy may be facing and whether management guidance has steadily been met in the past. I suggest you continue to research Petsec Energy to get a more holistic view of the stock by looking at:
1. Financial Health: Is PSA’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 trailing twelve months from 30 June 2017. This may not be consistent with full year annual report figures.