When SouthGobi Resources Ltd (TSX:SGQ) released its most recent earnings update (31 March 2018), I wanted to understand how these figures stacked up against its past performance. The two benchmarks I used were SouthGobi Resources’s average earnings over the past couple of years, and its industry performance. These are useful yardsticks to help me gauge whether or not SGQ actually performed well. Below is a quick commentary on how I see SGQ has performed. Check out our latest analysis for SouthGobi Resources
Did SGQ beat its long-term earnings growth trend and its industry?
I like to use data from the most recent 12 months, 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 examine many different companies in a uniform manner using new information. For SouthGobi Resources, its latest trailing-twelve-month earnings is -US$33.86M, which, against the prior year’s level, has become less negative. Since these values are somewhat nearsighted, I’ve computed an annualized five-year figure for SGQ’s net income, which stands at -US$94.03M. This means although net income is negative, it has become less negative over the years.We can further assess SouthGobi 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 SouthGobi Resources has seen an annual decline in revenue of -12.70%, on average. This adverse movement is a driver of the company’s inability to reach breakeven. Has the entire industry experienced this headwind? Scanning growth from a sector-level, the Canadian oil and gas industry has been multiplying average earnings growth of 81.26% in the prior year, and a flatter 1.33% over the past half a decade. This means that any uplift the industry is benefiting from, SouthGobi Resources has not been able to realize the gains unlike its industry peers.
What does this mean?
SouthGobi Resources’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 assess company-specific issues SouthGobi Resources may be facing and whether management guidance has dependably been met in the past. I recommend you continue to research SouthGobi Resources to get a more holistic view of the stock by looking at:
- Financial Health: Is SGQ’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.
- Valuation: What is SGQ 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 SGQ is currently mispriced by the market.
- 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.