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Should You Be Concerned About SORL Auto Parts Inc’s (NASDAQ:SORL) Earnings Growth?

Amar Chadha

Examining SORL Auto Parts Inc’s (NASDAQ:SORL) past track record of performance is an insightful exercise for investors. It allows us to reflect on whether or not the company has met or exceed expectations, which is a great indicator for future performance. Today I will assess SORL’s latest performance announced on 31 March 2018 and compare these figures to its longer term trend and industry movements. Check out our latest analysis for SORL Auto Parts

Commentary On SORL’s Past Performance

SORL’s trailing twelve-month earnings (from 31 March 2018) of US$25.67m has declined by -0.15% 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 8.91%, indicating the rate at which SORL is growing has slowed down. What could be happening here? Well, let’s look at what’s occurring with margins and if the rest of the industry is experiencing the hit as well.

Revenue growth over the last few years, has been positive, however, earnings growth has been lagging behind meaning SORL Auto Parts has been growing its expenses by a lot more. This harms margins and earnings, and is not a sustainable practice. Viewing growth from a sector-level, the US auto components industry has been growing its average earnings by double-digit 11.87% in the prior twelve months, and 11.13% over the previous five years. This means any uplift the industry is profiting from, SORL Auto Parts has not been able to gain as much as its average peer.

NasdaqGM:SORL Income Statement June 22nd 18

In terms of returns from investment, SORL Auto Parts has not invested its equity funds well, leading to a 13.11% return on equity (ROE), below the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 3.66% is below the US Auto Components industry of 6.49%, indicating SORL Auto Parts’s are utilized less efficiently. However, its return on capital (ROC), which also accounts for SORL Auto Parts’s debt level, has increased over the past 3 years from 8.27% to 13.46%.

What does this mean?

While past data is useful, it doesn’t tell the whole story. Companies that are profitable, but have unpredictable earnings, can have many factors affecting its business. You should continue to research SORL Auto Parts to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for SORL’s future growth? Take a look at our free research report of analyst consensus for SORL’s outlook.
  2. Financial Health: Is SORL’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 March 2018. 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.