In this article, I will take a look at Weichai Power Co., Ltd.'s (HKG:2338) most recent earnings update (30 June 2019) and compare these latest figures against its performance over the past few years, along with how the rest of 2338's industry performed. As a long-term investor, I find it useful to analyze the company's trend over time in order to estimate whether or not the company is able to meet its goals, and eventually grow sustainably over time.
Did 2338's recent earnings growth beat the long-term trend and the industry?
2338's trailing twelve-month earnings (from 30 June 2019) of CN¥9.6b has jumped 12% 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 25%, indicating the rate at which 2338 is growing has slowed down. To understand what's happening, let’s take a look at what’s transpiring with margins and whether the entire industry is experiencing the hit as well.
In terms of returns from investment, Weichai Power has fallen short of achieving a 20% return on equity (ROE), recording 19% instead. Furthermore, its return on assets (ROA) of 3.9% is below the HK Machinery industry of 5.5%, indicating Weichai Power's are utilized less efficiently. However, its return on capital (ROC), which also accounts for Weichai Power’s debt level, has increased over the past 3 years from 4.2% to 12%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 61% to 57% over the past 5 years.
What does this mean?
Weichai Power's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. While Weichai Power has a good historical track record with positive growth and profitability, there's no certainty that this will extrapolate into the future. I recommend you continue to research Weichai Power to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 2338’s future growth? Take a look at our free research report of analyst consensus for 2338’s outlook.
- Financial Health: Are 2338’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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