Examining how China Aerospace International Holdings Limited (SEHK:31) is performing as a company requires looking at more than just a years' earnings. Below, I will run you through a simple sense check to build perspective on how China Aerospace International Holdings is doing by comparing its most recent earnings with its historical trend, in addition to the performance of its electronic industry peers.
Was 31's weak performance lately a part of a long-term decline?
31's trailing twelve-month earnings (from 30 June 2019) of HK$366m has declined by -19% 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 -8.7%, indicating the rate at which 31 is growing has slowed down. Why is this? Let's examine what's going on with margins and whether the entire industry is facing the same headwind.
In terms of returns from investment, China Aerospace International Holdings has fallen short of achieving a 20% return on equity (ROE), recording 5.1% instead. Furthermore, its return on assets (ROA) of 2.9% is below the HK Electronic industry of 5.2%, indicating China Aerospace International Holdings's are utilized less efficiently. However, its return on capital (ROC), which also accounts for China Aerospace International Holdings’s debt level, has increased over the past 3 years from 1.5% to 2.9%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 27% to 16% over the past 5 years.
What does this mean?
Though China Aerospace International Holdings's past data is helpful, it is only one aspect of my investment thesis. Usually companies that face an extended period of diminishing earnings are going through some sort of reinvestment phase Though if the entire industry is struggling to grow over time, it may be a indicator of a structural change, which makes China Aerospace International Holdings and its peers a riskier investment. I suggest you continue to research China Aerospace International Holdings to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 31’s future growth? Take a look at our free research report of analyst consensus for 31’s outlook.
- Financial Health: Are 31’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.
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