Should You Be Concerned About New Zealand Oil & Gas Limited's (NZE:NZO) -22.52% Earnings Decline?

When New Zealand Oil & Gas Limited's (NZSE:NZO) announced its latest earnings (30 June 2017), I wanted to understand how these figures stacked up against its past performance. The two benchmarks I used were New Zealand Oil & Gas's average earnings over the past couple of years, and its industry performance. These are useful yardsticks to help me gauge whether or not NZO actually performed well. Below is a quick commentary on how I see NZO has performed. Check out our latest analysis for New Zealand Oil & Gas

How Well Did NZO Perform?

To account for any quarterly or half-yearly updates, 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 assess different stocks on a similar basis, using new information. For New Zealand Oil & Gas, its most recent trailing-twelve-month earnings is -NZ$22.61M, which, relative to the previous year's figure, has become more negative. Given that these values are somewhat short-term thinking, I have estimated an annualized five-year figure for New Zealand Oil & Gas's net income, which stands at -NZ$4.81M. This doesn’t seem to paint a better picture, as earnings seem to have consistently been getting more and more negative over time.

We can further evaluate New Zealand Oil & Gas's loss by looking at what the industry has been experiencing over the past few years. Each year, for the past half a decade New Zealand Oil & Gas has seen an annual decline in revenue of -5.09%, 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 NZ oil and gas industry has been growing its average earnings by double-digit 24.79% in the past twelve months, . This is a change from a volatile drop of -3.75% in the last couple of years. This means that any tailwind the industry is benefiting from, New Zealand Oil & Gas has not been able to gain as much as its average peer.

What does this mean?

New Zealand Oil & Gas'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 hard to envisage what will occur going forward, and when. The most useful step is to assess company-specific issues New Zealand Oil & Gas may be facing and whether management guidance has consistently been met in the past. I suggest you continue to research New Zealand Oil & Gas to get a better picture of the stock by looking at:

• 1. Future Outlook: What are well-informed industry analysts predicting for NZO’s future growth? Take a look at our free research report of analyst consensus for NZO’s outlook.
• 2. Financial Health: Is NZO’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.
• 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 30 June 2017. This may not be consistent with full year annual report figures.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.