How Does Stokes Limited’s (ASX:SKS) EPS Growth Stack Up Against Industry Performance?
In this article, I will take a look at Stokes Limited’s (ASX:SKS) most recent earnings update (30 June 2017) and compare these latest figures against its performance over the past few years, along with how the rest of SKS’s industry performed. As a long-term investor, I find it useful to analyze the company’s trend over time in order to estimate whether or not the company is able to meet its goals, and eventually grow sustainably over time. See our latest analysis for Stokes
How SKS fared against its long-term earnings performance and its industry
I like to 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 allows me to analyze different stocks in a uniform manner using the most relevant data points. Stokes’s latest earnings -A$0.5M, which, against last year’s figure, has become less negative. Given that these figures are somewhat myopic, I have created an annualized five-year figure for Stokes’s earnings, which stands at -A$1.3M. This means that, though net income is negative, it has become less negative over the years.
We can further assess Stokes’s loss by looking at what’s going on in the industry along with within the company. Initially, I want to briefly look into the line items. Revenue growth over the past couple of years has been negative at -3.25%. 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 electrical industry has been growing its average earnings by double-digit 18.02% in the prior year, and a more subdued 6.63% over the past five years. This suggests that, although Stokes is currently running a loss, it may have gained from industry tailwinds, moving earnings in the right direction.
What does this mean?
Though Stokes’s past data is helpful, it is only one aspect of my investment thesis. With companies that are currently loss-making, it is always hard to predict what will occur going forward, and when. The most insightful step is to examine company-specific issues Stokes may be facing and whether management guidance has regularly been met in the past. I recommend you continue to research Stokes to get a better picture of the stock by looking at:
1. Financial Health: Is SKS’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.
2. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
