How Has Cowell e Holdings Inc's (HKG:1415) Performed Against The Industry?

After looking at Cowell e Holdings Inc's (HKG:1415) latest earnings update (30 June 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 Cowell e Holdings

Was 1415's recent earnings decline worse than the long-term trend and the industry?

1415's trailing twelve-month earnings (from 30 June 2018) of US$15.9m has more than halved from US$28.5m in the prior year. Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 0.7%, indicating the rate at which 1415 is growing has slowed down. Why is this? Let's examine what's occurring with margins and if the rest of the industry is facing the same headwind.

Revenue growth in the past couple of years, has been positive, however, earnings growth has failed to keep up meaning Cowell e Holdings has been increasing its expenses by a lot more. This hurts margins and earnings, and is not a sustainable practice. Viewing growth from a sector-level, the HK electronic industry has been growing, albeit, at a muted single-digit rate of 8.9% over the previous twelve months, and a substantial 14.9% over the past five. This growth is a median of profitable companies of 24 Electronic companies in HK including Truly International Holdings, Prime Intelligence Solutions Group and Yeebo (International Holdings). This suggests that any uplift the industry is benefiting from, Cowell e Holdings has not been able to realize the gains unlike its average peer.

In terms of returns from investment, Cowell e Holdings has fallen short of achieving a 20% return on equity (ROE), recording 5.0% instead. Furthermore, its return on assets (ROA) of 4.1% is below the HK Electronic industry of 5.5%, indicating Cowell e Holdings's are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Cowell e Holdings’s debt level, has declined over the past 3 years from 33.1% to 6.0%.

What does this mean?

Though Cowell e Holdings's past data is helpful, it is only one aspect of my investment thesis. Generally companies that face a prolonged period of reduction in earnings are undergoing some sort of reinvestment phase in order to keep up with the recent industry disruption and expansion. I recommend you continue to research Cowell e Holdings to get a more holistic view of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for 1415’s future growth? Take a look at our free research report of analyst consensus for 1415’s outlook.
2. Financial Health: Are 1415’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 30 June 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.