After reading Kwoon Chung Bus Holdings Limited's (SEHK:306) most recent earnings announcement (31 March 2019), 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 Kwoon Chung Bus Holdings's performance has been impacted by industry movements. In this article I briefly touch on my key findings.
Was 306's recent earnings decline indicative of a tough track record?
306's trailing twelve-month earnings (from 31 March 2019) of HK$254m has declined by -8.0% 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 -1.0%, indicating the rate at which 306 is growing has slowed down. Why is this? Well, let's look at what's transpiring with margins and whether the entire industry is experiencing the hit as well.
In terms of returns from investment, Kwoon Chung Bus Holdings has fallen short of achieving a 20% return on equity (ROE), recording 11% instead. However, its return on assets (ROA) of 6.0% exceeds the HK Transportation industry of 5.4%, indicating Kwoon Chung Bus Holdings has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Kwoon Chung Bus Holdings’s debt level, has declined over the past 3 years from 13% to 8.4%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 46% to 88% over the past 5 years.
What does this mean?
Kwoon Chung Bus Holdings's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. In some cases, companies that experience a prolonged period of diminishing earnings are going through some sort of reinvestment phase Although, if the whole industry is struggling to grow over time, it may be a signal of a structural change, which makes Kwoon Chung Bus Holdings and its peers a higher risk investment. I suggest you continue to research Kwoon Chung Bus Holdings to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 306’s future growth? Take a look at our free research report of analyst consensus for 306’s outlook.
- Financial Health: Are 306’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 March 2019. This may not be consistent with full year annual report figures.
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