After reading Asia Coal Limited’s (SEHK:835) latest earnings update (30 September 2017), I found it beneficial to look back at how the company has performed in the past and compare this against the most recent numbers. As a long-term investor I tend to pay attention to earnings trend, rather than a single number at one point in time. I also like to compare against an industry benchmark to understand whether 835 has outperformed, or whether it is simply riding an industry wave. Below is a brief commentary on my key takeaways. View our latest analysis for Asia Coal
How 835 fared against its long-term earnings performance and its industry
I 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 enables me to analyze different companies on a similar basis, using new information. Asia Coal’s most recent earnings -HK$48.3M, which, relative to the prior year’s level, has become less negative. Given that these values may be fairly nearsighted, I have computed an annualized five-year value for 835’s net income, which stands at -HK$119.4M. This means that, although net income is negative, it has become less negative over the years.
We can further examine Asia Coal’s loss by looking at what’s going on in the industry on top of within the company. First, I want to quickly look into the line items. Revenue growth over the past few years has increased by 10.33%, implying that Asia Coal is in a high-growth period with expenses racing ahead elevated top-line growth rates. Inspecting growth from a sector-level, the HK oil and gas industry has been increasing average earnings growth of 54.48% in the past year, . This is a a substantial change from a volatile drop of -4.69% in the last couple of years. This means that any tailwind the industry is deriving benefit from, Asia Coal has not been able to gain as much as its average peer.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Companies that incur net loss is always hard to forecast what will happen in the future and when. The most insightful step is to assess company-specific issues Asia Coal may be facing and whether management guidance has dependably been met in the past. I recommend you continue to research Asia Coal to get a better picture of the stock by looking at:
1. Financial Health: Is 835’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.