Understanding The Hong Kong and China Gas Company Limited's (SEHK:3) performance as a company requires examining more than earnings from one point in time. Today I will take you through a basic sense check to gain perspective on how Hong Kong and China Gas is doing by evaluating its latest earnings with its longer term trend as well as its industry peers' performance over the same period.
Did 3's recent performance beat its trend and industry?
3's trailing twelve-month earnings (from 30 June 2019) of HK$8.4b has declined by -1.5% 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 4.8%, indicating the rate at which 3 is growing has slowed down. Why could this be happening? Well, let’s take a look at what’s transpiring with margins and whether the rest of the industry is feeling the heat.
In terms of returns from investment, Hong Kong and China Gas has fallen short of achieving a 20% return on equity (ROE), recording 13% instead. However, its return on assets (ROA) of 6.7% exceeds the HK Gas Utilities industry of 5.1%, indicating Hong Kong and China Gas has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Hong Kong and China Gas’s debt level, has declined over the past 3 years from 7.3% to 7.3%.
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 Hong Kong and China Gas to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 3’s future growth? Take a look at our free research report of analyst consensus for 3’s outlook.
- Financial Health: Are 3’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 2019. This may not be consistent with full year annual report figures.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.
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