Where Royal China International Holdings Limited’s (HKG:1683) Earnings Growth Stands Against Its Industry
Assessing Royal China International Holdings Limited’s (SEHK:1683) past track record of performance is an insightful exercise for investors. It allows us to reflect on whether or not the company has met or exceed expectations, which is a great indicator for future performance. Today I will assess 1683’s recent performance announced on 30 June 2017 and evaluate these figures to its long-term trend and industry movements. See our latest analysis for Royal China International Holdings
Did 1683 perform worse than its track record and industry?
For the purpose of this commentary, I like to use the ‘latest twelve-month’ data, which either annualizes the most recent 6-month earnings update, or in some cases, the most recent annual report is already the latest available financial data. This technique allows me to examine various companies on a more comparable basis, using new information. For Royal China International Holdings, its most recent trailing-twelve-month earnings is HK$3.79M, which, relative to last year’s figure, has fallen by a large -87.43%. Since these figures are relatively nearsighted, I have estimated an annualized five-year value for Royal China International Holdings’s earnings, which stands at HK$23.06M This doesn’t seem to paint a better picture, since earnings seem to have consistently been declining over time.
What could be happening here? Well, let’s take a look at what’s going on with margins and if the whole industry is experiencing the hit as well. Over the past few years, Royal China International Holdings has, on average, delivered negative top- and bottom-line growth. As revenues dropped by more, expenses have been cut in order to maintain margins – not the most sustainable operating activity. Inspecting growth from a sector-level, the HK consumer services industry has been growing its average earnings by double-digit 23.21% over the prior twelve months, . This is a turnaround from a volatile drop of -2.87% in the last couple of years. This shows that, in the recent industry expansion, Royal China International Holdings has not been able to gain as much as its average peer.
What does this mean?
Though Royal China International Holdings’s past data is helpful, it is only one aspect of my investment thesis. In some cases, companies that experience a prolonged period of reduction in earnings are undergoing some sort of reinvestment phase with the aim of keeping up with the latest industry expansion and disruption. You should continue to research Royal China International Holdings to get a better picture of the stock by looking at:
1. Financial Health: Is 1683’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 1683 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 1683 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 June 2017. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
