When Capricorn Metals Limited (ASX:CMM) announced its most recent earnings (30 June 2017), I did two things: looked at its past earnings track record, then look at what is happening in the industry. Understanding how Capricorn Metals performed requires a benchmark rather than trying to assess a standalone number at one point in time. Below is a quick commentary on how I see CMM has performed. Check out our latest analysis for Capricorn Metals
Were CMM’s earnings stronger than its past performances and the industry?
I look at data from the most recent 12 months, 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 enables me to analyze many different companies on a similar basis, using new information. For Capricorn Metals, its most recent bottom-line is -A$3.3M, which, against the previous year’s figure, has become less negative. Given that these values are somewhat short-term, I’ve created an annualized five-year value for Capricorn Metals’s net income, which stands at -A$1.2M. This means Capricorn Metals has historically performed better than recently, even though it seems like earnings are now heading back towards to right direction again.
We can further analyze Capricorn Metals’s loss by researching what’s going on in the industry as well as within the company. Firstly, I want to briefly look into the line items. Revenue growth over the past couple of years has been negative at -28.00%. The key to profitability here is to make sure the company’s cost growth is well-controlled. Eyeballing growth from a sector-level, the Australian metals and mining industry has been growing, albeit, at a muted single-digit rate of 7.36% over the past twelve months, and 8.50% over the past five years. This means while Capricorn Metals is presently unprofitable, it may have gained from industry tailwinds, moving earnings into a more favorable position.
What does this mean?
Though Capricorn Metals’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 forecast what will happen in the future and when. The most useful step is to examine company-specific issues Capricorn Metals may be facing and whether management guidance has steadily been met in the past. You should continue to research Capricorn Metals to get a more holistic view of the stock by looking at:
1. Financial Health: Is CMM’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.