Today I will examine Stone Resources Australia Limited’s (ASX:SHK) latest earnings update (30 June 2017) and compare these figures against its performance over the past couple of years, in addition to how the rest of SHK’s industry performed. As a long-term investor, I find it useful to analyze the company’s trend over time in order to estimate whether or not the company is able to meet its goals, and eventually grow sustainably over time. View our latest analysis for Stone Resources Australia
Was SHK’s weak performance lately a part of a long-term decline?
I look at the ‘latest twelve-month’ data, which annualizes the most recent half-year data, or in some cases, the latest annual report is already the most recent financial year data. This method allows me to analyze various companies on a more comparable basis, using the latest information. Stone Resources Australia’s latest twelve-month earnings -A$10.7M, which, against the prior year’s level, has become more negative. Given that these values are relatively myopic, I’ve determined an annualized five-year figure for Stone Resources Australia’s net income, which stands at -A$10.9M. This shows that, even though net income is negative, it has become less negative over the years.
Additionally, we can assess Stone Resources Australia’s loss by looking at what has been happening in the industry along with within the company. Firstly, I want to briefly look into the line items. Revenue growth over last few years has been negative at -62.94%. The key to profitability here is to make sure the company’s cost growth is well-controlled. Viewing growth from a sector-level, the Australian metals and mining industry has been growing, albeit, at a subdued single-digit rate of 6.76% in the past twelve months, and a substantial 10.06% over the past five. This means any tailwind the industry is enjoying, Stone Resources Australia has not been able to gain as much as its average peer.
What does this mean?
Though Stone Resources Australia’s past data is helpful, it is only one aspect of my investment thesis. With companies that are currently loss-making, it is always hard to predict what will happen in the future and when. The most valuable step is to examine company-specific issues Stone Resources Australia may be facing and whether management guidance has consistently been met in the past. You should continue to research Stone Resources Australia to get a better picture of the stock by looking at:
1. Financial Health: Is SHK’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.