With A -4.6% Earnings Drop, Did Lam Soon (Hong Kong) Limited (HKG:411) Really Underperform?

Assessing Lam Soon (Hong Kong) Limited's (SEHK:411) past track record of performance is a valuable exercise for investors. It enables us to reflect on whether the company has met or exceed expectations, which is a great indicator for future performance. Today I will assess 411's recent performance announced on 31 December 2019 and evaluate these figures to its longer term trend and industry movements.

See our latest analysis for Lam Soon (Hong Kong)

Was 411's recent earnings decline worse than the long-term trend and the industry?

411's trailing twelve-month earnings (from 31 December 2019) of HK$326m has declined by -4.6% 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 20%, indicating the rate at which 411 is growing has slowed down. Why could this be happening? Well, let's look at what's going on with margins and whether the whole industry is experiencing the hit as well.

In terms of returns from investment, Lam Soon (Hong Kong) has fallen short of achieving a 20% return on equity (ROE), recording 13% instead. However, its return on assets (ROA) of 9.3% exceeds the HK Food industry of 5.9%, indicating Lam Soon (Hong Kong) has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Lam Soon (Hong Kong)’s debt level, has declined over the past 3 years from 17% to 14%.

What does this mean?

Lam Soon (Hong Kong)'s track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. Companies that are profitable, but have unpredictable earnings, can have many factors impacting its business. I recommend you continue to research Lam Soon (Hong Kong) to get a better picture of the stock by looking at:

1. Financial Health: Are 411’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 411 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 411 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 31 December 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 editorial-team@simplywallst.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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.