Should You Be Happy With Yip's Chemical Holdings Limited's (HKG:408) 8.4% Earnings Growth?
For long term investors, improvement in profitability and outperformance against the industry can be important characteristics in a stock. In this article, I will take a look at Yip's Chemical Holdings Limited's (HKG:408) 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.
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Commentary On 408's Past Performance
408's trailing twelve-month earnings (from 31 December 2018) of HK$185m has increased by 8.4% compared to the previous year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of -4.1%, indicating the rate at which 408 is growing has accelerated. How has it been able to do this? Let's take a look at whether it is solely a result of industry tailwinds, or if Yip's Chemical Holdings has seen some company-specific growth.
In terms of returns from investment, Yip's Chemical Holdings has fallen short of achieving a 20% return on equity (ROE), recording 7.4% instead. Furthermore, its return on assets (ROA) of 3.0% is below the HK Chemicals industry of 6.9%, indicating Yip's Chemical Holdings's are utilized less efficiently. However, its return on capital (ROC), which also accounts for Yip's Chemical Holdings’s debt level, has increased over the past 3 years from 6.3% to 7.9%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 82% to 77% over the past 5 years.
What does this mean?
Yip's Chemical Holdings's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. Recent positive growth isn't always indicative of a continued optimistic outlook. There may be variables that are impacting the industry as a whole, hence the high industry growth rate over the same period of time. I suggest you continue to research Yip's Chemical Holdings to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for 408’s future growth? Take a look at our free research report of analyst consensus for 408’s outlook.
Financial Health: Are 408’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 31 December 2018. This may not be consistent with full year annual report figures.
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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. Thank you for reading.