In this article, I will take a look at Red Sky Energy Limited’s (ASX:ROG) most recent earnings update (30 June 2017) and compare these latest figures against its performance over the past few years, along with how the rest of ROG’s industry performed. As a long-term investor, I find it useful to analyze the company’s trend over time in order to estimate whether or not the company is able to meet its goals, and eventually grow sustainably over time. View our latest analysis for Red Sky Energy
Commentary On ROG’s Past Performance
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 allows me to analyze different stocks on a more comparable basis, using the most relevant data points. For Red Sky Energy, its most recent twelve-month earnings is -A$2.6M, which, in comparison to last year’s figure, has become more negative. Given that these values are relatively myopic, I have computed an annualized five-year figure for Red Sky Energy’s earnings, which stands at -A$3.0M. This means that, even though net income is negative, it has become less negative over the years.
We can further analyze Red Sky Energy’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 -34.71%. The key to profitability here is to make sure the company’s cost growth is well-managed. Eyeballing growth from a sector-level, the Australian oil and gas industry has been enduring some headwinds over the past year, leading to an average earnings drop of -25.18%. This is a major change, given that the industry has constantly been delivering a a solid growth of 28.17% in the past five years. This shows that whatever near-term headwind the industry is facing, it’s hitting Red Sky Energy harder than its peers.
What does this mean?
Red Sky Energy’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 envisage what will occur going forward, and when. The most valuable step is to assess company-specific issues Red Sky Energy may be facing and whether management guidance has consistently been met in the past. I recommend you continue to research Red Sky Energy to get a better picture of the stock by looking at:
1. Financial Health: Is ROG’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.