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Sinofortune Financial Holdings Limited (HKG:8123): Does The Earnings Decline Make It An Underperformer?

Simply Wall St

For investors with a long-term horizon, assessing earnings trend over time and against industry benchmarks is more valuable than looking at a single earnings announcement in one point in time. Investors may find my commentary, albeit very high-level and brief, on Sinofortune Financial Holdings Limited (SEHK:8123) useful as an attempt to give more color around how Sinofortune Financial Holdings is currently performing.

View our latest analysis for Sinofortune Financial Holdings

Did 8123 perform worse than its track record and industry?

8123 is loss-making, with the most recent trailing twelve-month earnings of -HK$100.8m (from 30 September 2019), which compared to last year has become more negative. Furthermore, the company's loss seem to be growing over time, with the five-year earnings average of -HK$68.2m. Each year, for the past five years 8123 has seen an annual increase in operating expense growth, outpacing revenue growth of 55%, on average. This adverse movement is a driver of the company's inability to reach breakeven.

Viewing growth from a sector-level, the HK specialty retail industry has been enduring some headwinds in the past year, leading to an average earnings drop of -6.3%. This is a significant change, given that the industry has constantly been delivering a a notable growth of 12% in the previous five years. This growth is a median of profitable companies of 25 Specialty Retail companies in HK including ZMFY Automobile Glass Services, Glorious Sun Enterprises and Sa Sa International Holdings. This means that any recent headwind the industry is enduring, it’s hitting Sinofortune Financial Holdings harder than its peers.

SEHK:8123 Income Statement, December 13th 2019

Even though Sinofortune Financial Holdings is currently unprofitable, its has a long cash runway to meet its upcoming operating expenses should this remain constant at the current level of HK$23m (SG&A and one-year R&D) . This is a strong indication of good cash management.

What does this mean?

Though Sinofortune Financial Holdings's past data is helpful, it is only one aspect of my investment thesis. With companies that are currently loss-making, it is always hard to forecast what will occur going forward, and when. The most valuable step is to examine company-specific issues Sinofortune Financial Holdings may be facing and whether management guidance has steadily been met in the past. I recommend you continue to research Sinofortune Financial Holdings to get a more holistic view of the stock by looking at:

  1. Financial Health: Are 8123’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. 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 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 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.