Understanding Lakes Oil NL’s (ASX:LKO) performance as a company requires examining more than earnings from one point in time. Today I will take you through a basic sense check to gain perspective on how Lakes Oil is doing by evaluating its latest earnings with its longer term trend as well as its industry peers’ performance over the same period. Check out our latest analysis for Lakes Oil
How Did LKO’s Recent Performance Stack Up Against Its Past?
I prefer to use data from the most recent 12 months, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This blend enables me to analyze various companies on a similar basis, using new information. Lakes Oil’s latest earnings -A$7.6M, which, in comparison to last year’s level, has become less negative. Given that these figures are relatively myopic, I’ve determined an annualized five-year value for Lakes Oil’s earnings, which stands at -A$10.8M. This means despite the fact that net income is negative, it has become less negative over the years.
Additionally, we can evaluate Lakes Oil’s loss by looking at what has been happening in the industry along with within the company. Firstly, I want to briefly look into the line items. Revenue growth over the past couple of years has grown by 37.41%, signalling that Lakes Oil is in a high-growth phase with expenses shooting ahead of elevated top-line growth rates. Inspecting growth from a sector-level, the Australian oil and gas industry has been enduring some headwinds in the previous twelve months, leading to an average earnings drop of -25.18%. This is a momentous change, given that the industry has constantly been delivering a a strong growth of 28.17% in the previous five years. This suggests that whatever near-term headwind the industry is facing, Lakes Oil is less exposed compared to its peers.
What does this mean?
While past data is useful, it doesn’t tell the whole story. With companies that are currently loss-making, it is always difficult to envisage what will occur going forward, and when. The most useful step is to assess company-specific issues Lakes Oil may be facing and whether management guidance has steadily been met in the past. I recommend you continue to research Lakes Oil to get a more holistic view of the stock by looking at:
1. Financial Health: Is LKO’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.