Does Telecom Service One Holdings Limited's (HKG:3997) 12% Earnings Growth Reflect The Long-Term Trend?

When Telecom Service One Holdings Limited's (HKG:3997) announced its latest earnings (31 March 2018), I wanted to understand how these figures stacked up against its past performance. The two benchmarks I used were Telecom Service One Holdings's average earnings over the past couple of years, and its industry performance. These are useful yardsticks to help me gauge whether or not 3997 actually performed well. Below is a quick commentary on how I see 3997 has performed.

See our latest analysis for Telecom Service One Holdings

Were 3997's earnings stronger than its past performances and the industry?

3997's trailing twelve-month earnings (from 31 March 2018) of HK$25m has jumped 12% 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 20%, indicating the rate at which 3997 is growing has slowed down. What could be happening here? Well, let's look at what's going on with margins and if the entire industry is feeling the heat.

In terms of returns from investment, Telecom Service One Holdings has invested its equity funds well leading to a 25% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 22% exceeds the HK Commercial Services industry of 5.5%, indicating Telecom Service One Holdings has used its assets more efficiently. However, its return on capital (ROC), which also accounts for Telecom Service One Holdings’s debt level, has declined over the past 3 years from 54% to 29%.

What does this mean?

Telecom Service One Holdings's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. While Telecom Service One Holdings has a good historical track record with positive growth and profitability, there's no certainty that this will extrapolate into the future. I recommend you continue to research Telecom Service One Holdings to get a more holistic view of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for 3997’s future growth? Take a look at our free research report of analyst consensus for 3997’s outlook.
2. Financial Health: Are 3997’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.
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 31 March 2018. This may not be consistent with full year annual report figures.

To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.