When Changshouhua Food Company Limited (SEHK:1006) released its most recent earnings update (30 June 2019), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Understanding how Changshouhua Food performed requires a benchmark rather than trying to assess a standalone number at one point in time. Below is a quick commentary on how I see 1006 has performed.
Did 1006 beat its long-term earnings growth trend and its industry?
1006's trailing twelve-month earnings (from 30 June 2019) of CN¥341m has increased by 4.6% 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 8.2%, indicating the rate at which 1006 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.
In terms of returns from investment, Changshouhua Food has fallen short of achieving a 20% return on equity (ROE), recording 11% instead. However, its return on assets (ROA) of 8.4% exceeds the HK Food industry of 5.8%, indicating Changshouhua Food has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Changshouhua Food’s debt level, has increased over the past 3 years from 11% to 11%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 24% to 0.5% over the past 5 years.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? I suggest you continue to research Changshouhua Food to get a better picture of the stock by looking at:
- Financial Health: Are 1006’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.
- Valuation: What is 1006 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 1006 is currently mispriced by the market.
- 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.
If you spot an error that warrants correction, please contact the editor at email@example.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.
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