When Cathedral Energy Services Ltd’s (TSX:CET) announced its latest earnings (31 December 2017), I wanted to understand how these figures stacked up against its past performance. The two benchmarks I used were Cathedral Energy Services’s average earnings over the past couple of years, and its industry performance. These are useful yardsticks to help me gauge whether or not CET actually performed well. Below is a quick commentary on how I see CET has performed. Check out our latest analysis for Cathedral Energy Services
Did CET perform worse than its track record and industry?
For the most up-to-date info, 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 allows me to assess different companies in a uniform manner using the most relevant data points. For Cathedral Energy Services, its most recent bottom-line (trailing twelve month) is CA$229.00K, which, relative to the prior year’s level, has declined by a non-trivial -91.25%. Since these figures may be fairly nearsighted, I’ve computed an annualized five-year figure for Cathedral Energy Services’s earnings, which stands at CA$4.47M This doesn’t seem to paint a better picture, since earnings seem to have gradually been falling over the longer term.Why could this be happening? Let’s examine what’s occurring with margins and if the rest of the industry is feeling the heat. Although revenue growth over the past couple of years, has been negative, earnings growth has been deteriorating by even more, implying that Cathedral Energy Services has been ramping up its expenses. This hurts margins and earnings, and is not a sustainable practice. Inspecting growth from a sector-level, the Canadian energy services industry has been enduring some headwinds over the last couple of years, leading to an average earnings drop of -9.42% in the most recent year. This means any headwind the industry is experiencing, it’s hitting Cathedral Energy Services harder than its peers.
What does this mean?
Though Cathedral Energy Services’s past data is helpful, it is only one aspect of my investment thesis. Typically companies that face a drawn out period of decline in earnings are going through some sort of reinvestment phase However, if the whole industry is struggling to grow over time, it may be a signal of a structural shift, which makes Cathedral Energy Services and its peers a riskier investment. I recommend you continue to research Cathedral Energy Services to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CET’s future growth? Take a look at our free research report of analyst consensus for CET’s outlook.
- Financial Health: Is CET’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.