After reading Australian Agricultural Company Limited’s (ASX:AAC) latest earnings update (30 September 2017), I found it beneficial to look back at how the company has performed in the past and compare this against the most recent numbers. As a long-term investor I tend to pay attention to earnings trend, rather than a single number at one point in time. I also like to compare against an industry benchmark to understand whether AAC has outperformed, or whether it is simply riding an industry wave. Below is a brief commentary on my key takeaways. View our latest analysis for Australian Agricultural
How Well Did AAC Perform?
To account for any quarterly or half-yearly updates, I 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 technique allows me to examine various companies on a similar basis, using the most relevant data points. For Australian Agricultural, its most recent twelve-month earnings is -A$14.0M, which compared to last year’s level, has turned from positive to negative. Given that these figures are relatively myopic, I’ve computed an annualized five-year value for AAC’s net income, which stands at A$6.3M.
Additionally, we can analyze Australian Agricultural’s loss by researching what’s going on in the industry as well as within the company. First, I want to briefly look into the line items. Revenue growth over the past couple of years has grown by a mere 2.71%. Given that top-line growth is also pretty flat, the key to profitability going forward would be managing costs. Viewing growth from a sector-level, the Australian food industry has been growing its average earnings by double-digit 16.20% in the prior twelve months, and 18.60% over the previous few years. This means that whatever uplift the industry is enjoying, Australian Agricultural has not been able to gain as much as its industry peers.
What does this mean?
Australian Agricultural’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 difficult to forecast what will happen in the future and when. The most insightful step is to assess company-specific issues Australian Agricultural may be facing and whether management guidance has consistently been met in the past. You should continue to research Australian Agricultural to get a better picture of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for AAC’s future growth? Take a look at our free research report of analyst consensus for AAC’s outlook.