For long-term investors, assessing earnings trend over time and against industry benchmarks is more beneficial than examining a single earnings announcement at a point in time. Investors may find my commentary, albeit very high-level and brief, on Tai Sin Electric Limited (SGX:500) useful as an attempt to give more color around how Tai Sin Electric is currently performing.
Did 500 perform worse than its track record and industry?
500's trailing twelve-month earnings (from 30 September 2019) of S$13m has declined by -4.8% 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 -9.4%, indicating the rate at which 500 is growing has slowed down. Why could this be happening? Well, let's look at what's going on with margins and if the whole industry is experiencing the hit as well.
In terms of returns from investment, Tai Sin Electric has fallen short of achieving a 20% return on equity (ROE), recording 7.3% instead. However, its return on assets (ROA) of 5.5% exceeds the SG Electrical industry of 4.7%, indicating Tai Sin Electric has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Tai Sin Electric’s debt level, has declined over the past 3 years from 17% to 7.7%.
What does this mean?
Though Tai Sin Electric's past data is helpful, it is only one aspect of my investment thesis. Generally companies that face an extended period of decline in earnings are undergoing some sort of reinvestment phase in order to keep up with the latest industry expansion and disruption. I suggest you continue to research Tai Sin Electric to get a more holistic view of the stock by looking at:
- Financial Health: Are 500’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 500 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 500 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 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 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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