With A -15% Earnings Drop, Did Coslight Technology International Group Limited (HKG:1043) Really Underperform?

After looking at Coslight Technology International Group Limited’s (HKG:1043) latest earnings update (31 December 2018), I found it helpful to revisit the company’s performance in the past couple of years and compare this against the latest numbers. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is an important aspect. In this article I briefly touch on my key findings.

Check out our latest analysis for Coslight Technology International Group

Did 1043 perform worse than its track record and industry?

1043’s trailing twelve-month earnings (from 31 December 2018) of CN¥200m has declined by -15% 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 29%, indicating the rate at which 1043 is growing has slowed down. Why is this? Well, let’s look at what’s transpiring with margins and whether the rest of the industry is experiencing the hit as well.

SEHK:1043 Income Statement, April 18th 2019
SEHK:1043 Income Statement, April 18th 2019

In terms of returns from investment, Coslight Technology International Group has fallen short of achieving a 20% return on equity (ROE), recording 9.1% instead. Furthermore, its return on assets (ROA) of 3.9% is below the HK Household Products industry of 5.0%, indicating Coslight Technology International Group’s are utilized less efficiently. However, its return on capital (ROC), which also accounts for Coslight Technology International Group’s debt level, has increased over the past 3 years from 2.7% to 5.3%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 127% to 78% over the past 5 years.

What does this mean?

Coslight Technology International Group’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. You should continue to research Coslight Technology International Group to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for 1043’s future growth? Take a look at our free research report of analyst consensus for 1043’s outlook.
  2. Financial Health: Are 1043’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 December 2018. This may not be consistent with full year annual report figures.

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.

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. Thank you for reading.