How Has Changshouhua Food Company Limited’s (HKG:1006) Earnings Fared Against The Long Term Trend
When Changshouhua Food Company Limited (HKG:1006) released its most recent earnings update (30 June 2018), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Understanding how Changshouhua Food performed requires a benchmark rather than trying to assess a standalone number at one point in time. Below is a quick commentary on how I see 1006 has performed.
View our latest analysis for Changshouhua Food
Commentary On 1006’s Past Performance
1006’s trailing twelve-month earnings (from 30 June 2018) of CN¥326.0m has jumped 19.5% compared to the previous year. Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 6.0%, indicating the rate at which 1006 is growing has accelerated. How has it been able to do this? Well, let’s take a look at whether it is solely attributable to an industry uplift, or if Changshouhua Food has experienced some company-specific growth.
Over the past couple of years, Changshouhua Food grew its bottom line faster than revenue by effectively controlling its costs. This resulted in a margin expansion and profitability over time. Looking at growth from a sector-level, the HK food industry has been growing its average earnings by double-digit 15.9% in the prior year, and a more muted 5.9% over the past five. This growth is a median of profitable companies of 24 Food companies in HK including S&P International Holding, China Agri-Industries Holdings and Shenguan Holdings (Group). This means that whatever uplift the industry is profiting from, Changshouhua Food is able to leverage this to its advantage.
In terms of returns from investment, Changshouhua Food has fallen short of achieving a 20% return on equity (ROE), recording 11.4% instead. However, its return on assets (ROA) of 9.8% exceeds the HK Food industry of 6.0%, indicating Changshouhua Food has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Changshouhua Food’s debt level, has declined over the past 3 years from 14.0% to 13.7%.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Companies that have performed well in the past, such as Changshouhua Food gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. You should continue to research Changshouhua Food to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for 1006’s future growth? Take a look at our free research report of analyst consensus for 1006’s outlook.
Financial Health: Are 1006’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 2018. This may not be consistent with full year annual report figures.
To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
