How Has Tradelink Electronic Commerce Limited's (HKG:536) Performed Against The Industry?

After looking at Tradelink Electronic Commerce Limited's (HKG:536) latest earnings update (31 December 2017), 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 Tradelink Electronic Commerce

How Well Did 536 Perform?

536's trailing twelve-month earnings (from 31 December 2017) of HK$74.12m has declined by -6.48% 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 0.23%, indicating the rate at which 536 is growing has slowed down. Why is this? Well, let’s take a look at what’s transpiring with margins and whether the whole industry is facing the same headwind.

Revenue growth in the past couple of years, has been positive, however, earnings growth has not been able to catch up, meaning Tradelink Electronic Commerce has been increasing its expenses by a lot more. This harms margins and earnings, and is not a sustainable practice. Scanning growth from a sector-level, the HK it industry has been growing, albeit, at a subdued single-digit rate of 7.92% over the prior year, and 5.73% over the previous five years. This growth is a median of profitable companies of 20 IT companies in HK including China ITS (Holdings), Nexion Technologies and Kinetix Systems Holdings. This suggests that any uplift the industry is deriving benefit from, Tradelink Electronic Commerce has not been able to reap as much as its average peer.

In terms of returns from investment, Tradelink Electronic Commerce has invested its equity funds well leading to a 20.91% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 10.18% exceeds the HK IT industry of 6.15%, indicating Tradelink Electronic Commerce has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Tradelink Electronic Commerce’s debt level, has increased over the past 3 years from 22.20% to 26.59%.

What does this mean?

Though Tradelink Electronic Commerce's past data is helpful, it is only one aspect of my investment thesis. In some cases, companies that experience a drawn out period of reduction in earnings are going through some sort of reinvestment phase with the aim of keeping up with the recent industry growth and disruption. I recommend you continue to research Tradelink Electronic Commerce to get a better picture of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for 536’s future growth? Take a look at our free research report of analyst consensus for 536’s outlook.
2. Financial Health: Is 536’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 2017. 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.