When Water Resources Group Limited (ASX:WRG) released its most recent earnings update (30 June 2017), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Understanding how Water Resources Group 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 WRG has performed. See our latest analysis for WRG
Could WRG beat the long-term trend and outperform its industry?
I prefer to use the ‘latest twelve-month’ data, which either annualizes the most recent 6-month earnings update, or in some cases, the most recent annual report is already the latest available financial data. This technique allows me to analyze many different companies in a uniform manner using the latest information. Water Resources Group’s most recent earnings -A$0.3M, which, in comparison to the previous year’s figure, has become less negative. Since these values are somewhat nearsighted, I’ve estimated an annualized five-year figure for Water Resources Group’s earnings, which stands at -A$4.3M. This shows that, even though net income is negative, it has become less negative over the years.
We can further assess Water Resources Group’s loss by researching what has been happening in the industry on top of within the company. Firstly, I want to briefly look into the line items. Revenue growth over last few years has been negative at -59.16%. 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 water utilities industry has been growing, albeit, at a subdued single-digit rate of 8.69% in the past year, and 6.75% over the past five years. This means even though Water Resources Group is currently running a loss, it may have gained from industry tailwinds, moving earnings into a more favorable position.
What does this mean?
Water Resources Group’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Companies that incur net loss is always hard to envisage what will happen in the future and when. The most valuable step is to examine company-specific issues Water Resources Group may be facing and whether management guidance has regularly been met in the past. You should continue to research Water Resources Group to get a better picture of the stock by looking at:
1. Financial Health: Is WRG’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.