Today I will take a look at LEAP Holdings Group Limited’s (HKG:1499) most recent earnings update (31 March 2018) and compare these latest figures against its performance over the past few years, as well as how the rest of the construction industry performed. As an investor, I find it beneficial to assess 1499’s trend over the short-to-medium term in order to gauge whether or not the company is able to meet its goals, and ultimately sustainably grow over time.
How Did 1499’s Recent Performance Stack Up Against Its Past?1499’s trailing twelve-month earnings (from 31 March 2018) of HK$25.37m has more than doubled from HK$8.36m in the prior year. Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 2.59%, indicating the rate at which 1499 is growing has accelerated. How has it been able to do this? Well, let’s take a look at whether it is solely due to industry tailwinds, or if LEAP Holdings Group has seen some company-specific growth.
The rise in earnings seems to be supported by a solid top-line increase overtaking its growth rate of expenses. Though this brought about a margin contraction, it has made LEAP Holdings Group more profitable. Looking at growth from a sector-level, the HK construction industry has been enduring some headwinds in the previous twelve months, leading to an average earnings drop of -15.32%. This is a major change, given that the industry has been delivering a positive rate of 7.50%, on average, over the previous five years. This growth is a median of profitable companies of 25 Construction companies in HK including Hong Kong International Construction Investment Management Group, Sam Woo Construction Group and Twintek Investment Holdings. This suggests that whatever near-term headwind the industry is enduring, the impact on LEAP Holdings Group has been softer relative to its peers.In terms of returns from investment, LEAP Holdings Group has not invested its equity funds well, leading to a 6.85% return on equity (ROE), below the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 4.92% is below the HK Construction industry of 5.39%, indicating LEAP Holdings Group’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for LEAP Holdings Group’s debt level, has declined over the past 3 years from 52.91% to 8.36%.
What does this mean?
Though LEAP Holdings Group’s past data is helpful, it is only one aspect of my investment thesis. Recent positive growth isn’t always indicative of a continued optimistic outlook. I suggest you continue to research LEAP Holdings Group to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 1499’s future growth? Take a look at our free research report of analyst consensus for 1499’s outlook.
- Financial Health: Is 1499’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.