For investors with a long-term horizon, assessing earnings trend over time and against industry benchmarks is more valuable than looking at a single earnings announcement in one point in time. Investors may find my commentary, albeit very high-level and brief, on Challenger Energy Limited (ASX:CEL) useful as an attempt to give more color around how Challenger Energy is currently performing. View our latest analysis for Challenger Energy
How Well Did CEL Perform?
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 method enables me to analyze various companies on a similar basis, using the most relevant data points. Challenger Energy’s most recent bottom-line -A$0.9M, which, against last year’s level, has become less negative. Given that these figures are somewhat short-term, I have created an annualized five-year figure for CEL’s net income, which stands at -A$3.6M. This means though net income is negative, it has become less negative over the years.
We can further analyze Challenger Energy’s loss by looking at what has been happening in the industry along with within the company. First, I want to briefly look into the line items. Revenue growth over last few years has been negative at -63.25%. The key to profitability here is to make sure the company’s cost growth is well-managed. Viewing growth from a sector-level, the Australian oil, gas and consumable fuels industry has been ramping up average earnings growth of 57.50% over the previous year, and a less exciting 5.14% over the previous five years. This suggests that whatever tailwind the industry is profiting from, Challenger Energy has not been able to reap as much as its average peer.
What does this mean?
Though Challenger Energy’s past data is helpful, it is only one aspect of my investment thesis. With companies that are currently loss-making, it is always difficult to predict what will occur going forward, and when. The most valuable step is to examine company-specific issues Challenger Energy may be facing and whether management guidance has dependably been met in the past. You should continue to research Challenger Energy to get a more holistic view of the stock by looking at:
1. Financial Health: Is CEL’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. 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 last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.