After reading Cokal Limited’s (ASX:CKA) latest earnings update (30 June 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 CKA has outperformed, or whether it is simply riding an industry wave. Below is a brief commentary on my key takeaways. Check out our latest analysis for Cokal
Could CKA beat the long-term trend and outperform its industry?
I use the ‘latest twelve-month’ data, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This technique enables me to assess various companies on a similar basis, using the most relevant data points. For Cokal, its latest earnings is -$11.9M, which, relative to the prior year’s figure, has become less negative. Since these figures may be fairly short-term thinking, I’ve calculated an annualized five-year figure for CKA’s net income, which stands at -$11.1M. This means Cokal has historically performed better than recently, while it seems like earnings are now heading back in the right direction again.
Additionally, we can assess Cokal’s loss by looking at what’s going on in the industry as well as within the company. Initially, I want to quickly look into the line items. Revenue growth over the past few years has been negative at -19.61%. 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 muted single-digit rate of 7.36% over the past twelve months, and 8.50% over the previous few years. This shows that, though Cokal is presently running a loss, it may have been aided by industry tailwinds, moving earnings into a more favorable position.
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 hard to envisage what will occur going forward, and when. The most insightful step is to examine company-specific issues Cokal may be facing and whether management guidance has consistently been met in the past. You should continue to research Cokal to get a more holistic view of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for CKA’s future growth? Take a look at our free research report of analyst consensus for CKA’s outlook.