After reading Summit Resources Limited’s (ASX:SMM) most recent earnings announcement (30 June 2017), I found it useful to look back at how the company has performed in the past and compare this against the latest numbers. 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. Check out our latest analysis for Summit Resources
Commentary On SMM’s Past Performance
I prefer 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 technique enables me to assess different stocks in a uniform manner using new information. For Summit Resources, its most recent earnings is -A$0.3M, which compared to the previous year’s figure, has become less negative. Given that these figures are relatively nearsighted, I have calculated an annualized five-year value for SMM’s net income, which stands at -A$0.7M. This suggests that, despite the fact that net income is negative, it has become less negative over the years.
We can further examine Summit Resources’s loss by researching what has been happening in the industry as well as within the company. Initially, I want to briefly look into the line items. Revenue growth over the last couple of years has been negative at -24.94%. The key to profitability here is to make sure the company’s cost growth is well-managed. Looking at growth from a sector-level, the Australian oil and gas industry has been enduring some headwinds in the previous year, leading to an average earnings drop of -25.18%. This is a significant change, given that the industry has constantly been delivering a a notable growth of 28.17% in the previous five years. This suggests that despite the fact that Summit Resources is presently running a loss, whatever recent headwind the industry is enduring, Summit Resources is less exposed compared to its peers.
What does this mean?
Summit Resources’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. With companies that are currently loss-making, it is always difficult to predict what will occur going forward, and when. The most insightful step is to assess company-specific issues Summit Resources may be facing and whether management guidance has steadily been met in the past. I suggest you continue to research Summit Resources to get a more holistic view of the stock by looking at: