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With A -5.0% Earnings Drop, Is Luen Thai Holdings Limited's (HKG:311) A Concern?

Simply Wall St

Increase in profitability and industry-beating performance can be essential considerations in a stock for some investors. In this article, I will take a look at Luen Thai Holdings Limited's (SEHK:311) track record on a high level, to give you some insight into how the company has been performing against its historical trend and its industry peers.

See our latest analysis for Luen Thai Holdings

Despite a decline, did 311 underperform the long-term trend and the industry?

311's trailing twelve-month earnings (from 30 June 2019) of US$21m has declined by -5.0% 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 -6.1%, indicating the rate at which 311 is growing has slowed down. Why could this be happening? Let's examine what's occurring with margins and whether the whole industry is facing the same headwind.

SEHK:311 Income Statement, December 4th 2019

In terms of returns from investment, Luen Thai Holdings has fallen short of achieving a 20% return on equity (ROE), recording 10% instead. Furthermore, its return on assets (ROA) of 4.7% is below the HK Luxury industry of 5.1%, indicating Luen Thai Holdings's are utilized less efficiently. However, its return on capital (ROC), which also accounts for Luen Thai Holdings’s debt level, has increased over the past 3 years from 7.4% to 14%.

What does this mean?

Luen Thai Holdings's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. Typically companies that endure a prolonged period of diminishing earnings are undergoing some sort of reinvestment phase However, if the whole industry is struggling to grow over time, it may be a sign of a structural change, which makes Luen Thai Holdings and its peers a riskier investment. You should continue to research Luen Thai Holdings to get a better picture of the stock by looking at:

  1. Financial Health: Are 311’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. Valuation: What is 311 worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether 311 is currently mispriced by the market.
  3. 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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

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. Thank you for reading.