When Capinfo Company Limited (SEHK:1075) announced its most recent earnings (30 June 2019), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Being able to interpret how well Capinfo has done so far requires weighing its performance against a benchmark, rather than looking at a standalone number at a point in time. In this article, I've summarized the key takeaways on how I see 1075 has performed.
Was 1075's recent earnings decline worse than the long-term trend and the industry?
1075's trailing twelve-month earnings (from 30 June 2019) of CN¥70m has declined by -19% 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 -2.3%, indicating the rate at which 1075 is growing has slowed down. Why is this? Well, let's look at what's transpiring with margins and whether the whole industry is facing the same headwind.
In terms of returns from investment, Capinfo has fallen short of achieving a 20% return on equity (ROE), recording 7.2% instead. Furthermore, its return on assets (ROA) of 1.7% is below the HK IT industry of 6.6%, indicating Capinfo's are utilized less efficiently. However, its return on capital (ROC), which also accounts for Capinfo’s debt level, has increased over the past 3 years from 2.0% to 8.7%.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Usually companies that endure a drawn out period of diminishing earnings are undergoing some sort of reinvestment phase Although, if the whole industry is struggling to grow over time, it may be a signal of a structural shift, which makes Capinfo and its peers a higher risk investment. You should continue to research Capinfo to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 1075’s future growth? Take a look at our free research report of analyst consensus for 1075’s outlook.
- Financial Health: Are 1075’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.
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