After looking at Karma Energy Limited’s (NSEI:KARMAENG) latest earnings announcement (31 March 2017), I found it useful to revisit the company’s performance in the past couple of years and assess this against the most recent figures. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is a crucial aspect. Below is a brief commentary on my key takeaways. See our latest analysis for Karma Energy
How Did KARMAENG’s Recent Performance Stack Up Against Its Past?
I prefer 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 enables me to analyze different stocks on a similar basis, using the most relevant data points. For Karma Energy, its latest earnings (trailing twelve month) is -₹0.4M, which, against the prior year’s figure, has become less negative. Since these figures may be fairly myopic, I’ve created an annualized five-year value for Karma Energy’s earnings, which stands at -₹15.2M. This suggests that, despite the fact that net income is negative, it has become less negative over the years.Additionally, we can analyze Karma Energy’s loss by looking at what has been happening in the industry as well as within the company. Initially, I want to quickly look into the line items. Revenue growth over the past couple of years has grown by a mere 2.57%. Since top-line growth is also pretty flat, the key to profitability going forward would be managing costs. Scanning growth from a sector-level, the IN renewable energy industry has been growing its average earnings by double-digit 16.53% in the prior twelve months, and a less exciting 4.62% over the previous five years. This means even though Karma Energy is presently running a loss, it may have been aided by industry tailwinds, moving earnings towards to right direction.
What does this mean?
Though Karma Energy’s past data is helpful, it is only one aspect of my investment thesis. Companies that incur net loss is always difficult to predict what will happen in the future and when. The most insightful step is to examine company-specific issues Karma Energy may be facing and whether management guidance has dependably been met in the past. I recommend you continue to research Karma Energy to get a more holistic view of the stock by looking at:
1. Financial Health: Is KARMAENG’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 KARMAENG 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 KARMAENG 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.NB: Figures in this article are calculated using data from the trailing twelve months from 31 March 2017. This may not be consistent with full year annual report figures.