Examining China Resources Power Holdings Company Limited’s (SEHK:836) past track record of performance is a valuable exercise for investors. It enables us to understand whether the company has met or exceed expectations, which is a powerful signal for future performance. Below, I will assess 836’s latest performance announced on 30 June 2019 and weigh these figures against its longer term trend and industry movements.
Despite a decline, did 836 underperform the long-term trend and the industry?
836’s trailing twelve-month earnings (from 30 June 2019) of HK$5.0b has declined by -13% 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 -21%, indicating the rate at which 836 is growing has slowed down. Why is this? Well, let’s take a look at what’s going on with margins and if the entire industry is experiencing the hit as well.
In terms of returns from investment, China Resources Power Holdings has fallen short of achieving a 20% return on equity (ROE), recording 7.4% instead. Furthermore, its return on assets (ROA) of 3.9% is below the HK Renewable Energy industry of 4.3%, indicating China Resources Power Holdings’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for China Resources Power Holdings’s debt level, has declined over the past 3 years from 14% to 8.4%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 114% to 124% over the past 5 years.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Typically companies that experience a prolonged period of decline in earnings are going through some sort of reinvestment phase Although, if the entire industry is struggling to grow over time, it may be a signal of a structural change, which makes China Resources Power Holdings and its peers a higher risk investment. I recommend you continue to research China Resources Power Holdings to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 836’s future growth? Take a look at our free research report of analyst consensus for 836’s outlook.
- Financial Health: Are 836’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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