In this commentary, I will examine SouthGobi Resources Ltd’s (TSX:SGQ) latest earnings update (30 September 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 SGQ’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. Check out our latest analysis for SouthGobi Resources
How Well Did SGQ Perform?
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 allows me to examine different stocks on a similar basis, using the latest information. For SouthGobi Resources, its latest earnings (trailing twelve month) is -US$43.78M, which, against last year’s figure, has become less negative. Given that these figures are fairly short-term thinking, I have created an annualized five-year figure for SGQ’s earnings, which stands at -US$94.58M. This suggests that, despite the fact that 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 five years SouthGobi Resources has seen an annual decline in revenue of -19.77%, 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 growing its average earnings by double-digit 12.20% over the previous twelve months, and a flatter -0.21% over the past five years. This means even though SouthGobi Resources is presently unprofitable, it may have only just benefited from the recent industry expansion, moving earnings in the right direction.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Companies that incur net loss is always hard to predict what will happen in the future and when. The most insightful step is to examine company-specific issues SouthGobi Resources may be facing and whether management guidance has consistently been met in the past. I recommend you continue to research SouthGobi Resources to get a better picture of the stock by looking at:
- 1. 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.
- 2. 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.
- 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.