Should SmarTone Telecommunications Holdings Limited's (HKG:315) Recent Earnings Decline Worry You?

In this article, I will take a look at SmarTone Telecommunications Holdings Limited's (SEHK:315) most recent earnings update (31 December 2019) and compare these latest figures against its performance over the past few years, along with how the rest of 315's industry performed. As a long-term investor, I find it useful to analyze the company's trend over time in order to estimate whether or not the company is able to meet its goals, and eventually grow sustainably over time.

See our latest analysis for SmarTone Telecommunications Holdings

Commentary On 315's Past Performance

315's trailing twelve-month earnings (from 31 December 2019) of HK$565m has declined by -8.8% 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 -8.7%, indicating the rate at which 315 is growing has slowed down. Why is this? Well, let’s take a look at what’s going on with margins and if the entire industry is feeling the heat.

In terms of returns from investment, SmarTone Telecommunications Holdings has fallen short of achieving a 20% return on equity (ROE), recording 11% instead. Furthermore, its return on assets (ROA) of 5.6% is below the HK Wireless Telecom industry of 5.8%, indicating SmarTone Telecommunications Holdings's are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for SmarTone Telecommunications Holdings’s debt level, has declined over the past 3 years from 14% to 9.7%.

What does this mean?

Though SmarTone Telecommunications Holdings's past data is helpful, it is only one aspect of my investment thesis. Typically companies that experience an extended period of reduction in earnings are undergoing some sort of reinvestment phase Though if the whole industry is struggling to grow over time, it may be a signal of a structural change, which makes SmarTone Telecommunications Holdings and its peers a higher risk investment. You should continue to research SmarTone Telecommunications Holdings to get a better picture of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for 315’s future growth? Take a look at our free research report of analyst consensus for 315’s outlook.
2. Financial Health: Are 315’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 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.

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