After reading BYD Company Limited’s (SEHK:1211) latest earnings update (31 December 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 1211 has outperformed, or whether it is simply riding an industry wave. Below is a brief commentary on my key takeaways. See our latest analysis for BYD
Despite a decline, did 1211 underperform the long-term trend and the industry?
I like to use data from the most recent 12 months, which annualizes the most recent half-year data, or in some cases, the latest annual report is already the most recent financial year data. This technique allows me to examine various companies in a uniform manner using new information. For BYD, its most recent trailing-twelve-month earnings is CN¥4.07B, which compared to last year’s figure, has fallen by -19.51%. Since these figures are relatively short-term, I’ve determined an annualized five-year value for BYD’s earnings, which stands at CN¥1.87B This means that while earnings growth was negative against the prior year, over a longer period of time, BYD’s profits have been increasing on average.
What’s enabled this growth? Well, let’s take a look at whether it is only because of industry tailwinds, or if BYD has seen some company-specific growth. In the last couple of years, BYD grew its bottom line faster than revenue by effectively controlling its costs. This has led to a margin expansion and profitability over time. Eyeballing growth from a sector-level, the HK auto industry has been growing, albeit, at a muted single-digit rate of 3.25% in the past twelve months, and 9.45% over the past half a decade. This means that any near-term headwind the industry is experiencing, it’s hitting BYD harder than its peers.
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 affecting its business. I recommend you continue to research BYD to get a better picture of the stock by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for 1211’s future growth? Take a look at our free research report of analyst consensus for 1211’s outlook.
- 2. Financial Health: Is 1211’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.
- 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 31 December 2017. 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.