After looking at Reedy Lagoon Corporation Limited’s (ASX:RLC) latest earnings announcement (30 June 2017), I found it useful to revisit the company’s performance in the past couple of years and assess this against the most recent figures. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is a crucial aspect. Below is a brief commentary on my key takeaways. See our latest analysis for RLC
Did RLC perform worse than its track record and industry?
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 enables me to examine different stocks on a more comparable basis, using the latest information. Reedy Lagoon’s latest twelve-month earnings -A$0.8M, which, against the previous year’s figure, has become more negative. Given that these figures may be fairly myopic, I’ve estimated an annualized five-year figure for Reedy Lagoon’s earnings, which stands at -A$0.5M. This doesn’t look much better, since earnings seem to have steadily been getting more and more negative over time.
We can further analyze Reedy Lagoon’s loss by researching what’s going on in the industry along with within the company. Firstly, I want to quickly look into the line items. Revenue growth over past couple of years has been negative at -44.41%. 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% over the previous year, and a substantial 11.62% over the past five. This means that any uplift the industry is benefiting from, Reedy Lagoon has not been able to realize the gains unlike its average peer.
What does this mean?
Though Reedy Lagoon’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 happen in the future and when. The most useful step is to assess company-specific issues Reedy Lagoon may be facing and whether management guidance has steadily been met in the past. You should continue to research Reedy Lagoon to get a more holistic view of the stock by looking at: