For investors with a long-term horizon, examining earnings trend over time and against industry peers is more insightful than looking at an earnings announcement in one point in time. Investors may find my commentary, albeit very high-level and brief, on Redbank Copper Limited (ASX:RCP) useful as an attempt to give more color around how Redbank Copper is currently performing. Check out our latest analysis for Redbank Copper
Did RCP beat its long-term earnings growth trend and its industry?
I look at 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 method allows me to examine different companies on a similar basis, using the latest information. For Redbank Copper, the latest twelve-month earnings -A$0.6M, which, relative to last year’s level, has become less negative. Given that these figures may be fairly nearsighted, I’ve calculated an annualized five-year figure for Redbank Copper’s earnings, which stands at -A$3.5M. This suggests that, while net income is negative, it has become less negative over the years.
We can further assess Redbank Copper’s loss by researching what has been happening in the industry along with within the company. First, I want to quickly look into the line items. Revenue growth over last couple of years has been negative, with the actual revenue level deteriorating by more than half! The key to profitability here is to make sure the company’s cost growth is well-controlled. Looking at growth from a sector-level, the Australian metals and mining industry has been growing, albeit, at a subdued single-digit rate of 6.76% in the previous twelve months, and a substantial 10.06% over the past five. This suggests that, while Redbank Copper is presently running a loss, it may have been aided by industry tailwinds, moving earnings into a more favorable position.
What does this mean?
Though Redbank Copper’s past data is helpful, it is only one aspect of my investment thesis. Companies that incur net loss is always difficult to forecast what will occur going forward, and when. The most valuable step is to assess company-specific issues Redbank Copper may be facing and whether management guidance has steadily been met in the past. I suggest you continue to research Redbank Copper to get a more holistic view of the stock by looking at:
1. Financial Health: Is RCP’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.