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Water Oasis Group Limited (HKG:1161): Has Recent Earnings Growth Beaten Long-Term Trend?

Simply Wall St

After reading Water Oasis Group Limited's (SEHK:1161) most recent earnings announcement (30 September 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 Water Oasis Group's performance has been impacted by industry movements. In this article I briefly touch on my key findings.

View our latest analysis for Water Oasis Group

Commentary On 1161's Past Performance

1161's trailing twelve-month earnings (from 30 September 2019) of HK$108m has jumped 13% compared to the previous year.

However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 18%, indicating the rate at which 1161 is growing has slowed down. To understand what's happening, let's look at what's occurring with margins and if the entire industry is facing the same headwind.

SEHK:1161 Income Statement, February 5th 2020

In terms of returns from investment, Water Oasis Group has invested its equity funds well leading to a 38% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 11% exceeds the HK Consumer Services industry of 7.1%, indicating Water Oasis Group has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Water Oasis Group’s debt level, has increased over the past 3 years from 83% to 115%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 9.4% to 4.7% over the past 5 years.

What does this mean?

Though Water Oasis Group's past data is helpful, it is only one aspect of my investment thesis. While Water Oasis Group has a good historical track record with positive growth and profitability, there's no certainty that this will extrapolate into the future. You should continue to research Water Oasis Group to get a more holistic view of the stock by looking at:

  1. Financial Health: Are 1161’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. Valuation: What is 1161 worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether 1161 is currently mispriced by the market.
  3. 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.