After reading China Green Agriculture Inc’s (NYSE:CGA) most recent earnings announcement (30 September 2017), I found it useful to look back at how the company has performed in the past and compare this against the latest numbers. As a long term investor, I pay close attention to earnings trend, rather than the figures published at one point in time. I also compare against an industry benchmark to check whether China Green Agriculture’s performance has been impacted by industry movements. In this article I briefly touch on my key findings. View our latest analysis for China Green Agriculture
Was CGA’s recent earnings decline indicative of a tough track record?
To account for any quarterly or half-yearly updates, I use data from the most recent 12 months, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This enables me to assess different companies on a more comparable basis, using the latest information. For China Green Agriculture, its most recent earnings (trailing twelve month) is US$22.90M, which compared to the prior year’s figure, has dropped by -7.72%. Since these values may be relatively short-term, I have created an annualized five-year value for China Green Agriculture’s earnings, which stands at US$32.55M This doesn’t seem to paint a better picture, as earnings seem to have consistently been falling over the longer term.
Why is this? Well, let’s look at what’s going on with margins and whether the entire industry is experiencing the hit as well. Revenue growth over the past couple of years, has been positive, nevertheless earnings growth has been deteriorating. This implies that China Green Agriculture has been growing expenses, which is hurting margins and earnings, and is not a sustainable practice. Viewing growth from a sector-level, the US chemicals industry has been growing its average earnings by double-digit 13.71% in the previous year, and a more subdued 4.38% over the last five years. This means any tailwind the industry is enjoying, China Green Agriculture has not been able to reap as much as its industry peers.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Usually companies that experience an extended period of diminishing earnings are undergoing some sort of reinvestment phase in order to keep up with the latest industry disruption and expansion. I suggest you continue to research China Green Agriculture to get a more holistic view of the stock by looking at:
- 1. Financial Health: Is CGA’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 CGA 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 CGA 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 September 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.