Investors with a long-term horizong may find it valuable to assess Huazhu Group Limited's (NASDAQ:HTHT) earnings trend over time and against its industry benchmark as opposed to simply looking at a sincle earnings announcement at one point in time. Below is my commentary, albiet very simple and high-level, on how Huazhu Group is currently performing.
Was HTHT's recent earnings decline worse than the long-term trend and the industry?
HTHT's trailing twelve-month earnings (from 30 June 2019) of CN¥968m has declined by -17% compared to the previous year.
Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 25%, indicating the rate at which HTHT is growing has slowed down. Why is this? Let's examine what's going on with margins and whether the rest of the industry is feeling the heat.
In terms of returns from investment, Huazhu Group has fallen short of achieving a 20% return on equity (ROE), recording 14% instead. Furthermore, its return on assets (ROA) of 2.5% is below the US Hospitality industry of 5.9%, indicating Huazhu Group's are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Huazhu Group’s debt level, has declined over the past 3 years from 12% to 6.6%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 10% to 128% over the past 5 years.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Companies that are profitable, but have capricious earnings, can have many factors impacting its business. I recommend you continue to research Huazhu Group to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for HTHT’s future growth? Take a look at our free research report of analyst consensus for HTHT’s outlook.
- Financial Health: Are HTHT’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.
- 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 trailing twelve months from 30 June 2019. This may not be consistent with full year annual report figures.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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