In this commentary, I will examine Sabine Royalty Trust’s (NYSE:SBR) 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 SBR’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 Sabine Royalty Trust
How Well Did SBR Perform?
To account for any quarterly or half-yearly updates, I use data from the most recent 12 months, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This allows me to analyze different stocks on a similar basis, using the most relevant data points. For Sabine Royalty Trust, its latest earnings (trailing twelve month) is $33.2M, which, against last year’s level, has moved up by 12.41%. Given that these values are fairly myopic, I have determined an annualized five-year value for SBR’s net income, which stands at $49.7M. This shows that, despite the fact that earnings increased from last year’s level, over the past couple of years, Sabine Royalty Trust’s earnings have been falling on average.Why is this? Well, let’s look at what’s occurring with margins and whether the entire industry is feeling the heat. Although revenue growth over the last couple of years, has been negative, earnings growth has been falling by even more, implying that Sabine Royalty Trust has been increasing its expenses. This harms margins and earnings, and is not a sustainable practice. Scanning growth from a sector-level, the US oil and gas industry has been growing its average earnings by double-digit 18.32% over the previous year, . This is a change from a volatile drop of -8.11% in the previous few years. This means in the recent industry expansion, Sabine Royalty Trust has not been able to leverage it as much as its industry peers.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Recent positive growth isn’t always indicative of a continued optimistic outlook. There may be factors that are influencing the industry as a whole, thus the high industry growth rate over the same time frame. I suggest you continue to research Sabine Royalty Trust to get a better picture of the stock by looking at:
1. Financial Health: Is SBR’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 SBR 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 SBR 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 30 September 2017. This may not be consistent with full year annual report figures.