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 Lanka Graphite Limited (ASX:LGR) useful as an attempt to give more color around how Lanka Graphite is currently performing. See our latest analysis for Lanka Graphite
Did LGR beat its long-term earnings growth trend and its industry?
For the purpose of this commentary, I like to use 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 enables me to examine different companies on a similar basis, using new information. For Lanka Graphite, its most recent earnings is -A$1.7M, which, in comparison to last year’s level, has become less negative. Given that these figures may be relatively short-term thinking, I’ve determined an annualized five-year value for Lanka Graphite’s earnings, which stands at -A$1.6M. This means that, Lanka Graphite has historically performed better than recently, even though it seems like earnings are now heading back towards to right direction again.
Additionally, we can evaluate Lanka Graphite’s loss by researching what has been happening in the industry as well as within the company. First, I want to quickly look into the line items. Revenue growth over the past couple of years has been negative, with the actual revenue level reducing by more than half! The key to profitability here is to make sure the company’s cost growth is well-managed. Inspecting growth from a sector-level, the Australian metals and mining industry has been growing, albeit, at a unexciting single-digit rate of 7.36% over the previous twelve months, and 8.50% over the previous five years. This means even though Lanka Graphite is currently unprofitable, it may have benefited from industry tailwinds, moving earnings towards to right direction.
What does this mean?
Lanka Graphite’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. With companies that are currently loss-making, it is always difficult to forecast what will occur going forward, and when. The most useful step is to assess company-specific issues Lanka Graphite may be facing and whether management guidance has dependably been met in the past. I recommend you continue to research Lanka Graphite to get a more holistic view of the stock by looking at: