After reading Himachal Futuristic Communications Limited’s (NSE:HFCL) most recent earnings announcement (31 March 2019), I found it useful to look back at how the company has performed in the past 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 a crucial aspect. Below is a brief commentary on my key takeaways.
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Were HFCL’s earnings stronger than its past performances and the industry?
HFCL’s trailing twelve-month earnings (from 31 March 2019) of ₹2.2b has jumped 31% compared to the previous year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of -20%, indicating the rate at which HFCL is growing has accelerated. What’s the driver of this growth? Let’s see if it is merely due to industry tailwinds, or if Himachal Futuristic Communications has seen some company-specific growth.
In terms of returns from investment, Himachal Futuristic Communications has fallen short of achieving a 20% return on equity (ROE), recording 16% instead. However, its return on assets (ROA) of 9.4% exceeds the IN Telecom industry of 6.9%, indicating Himachal Futuristic Communications has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Himachal Futuristic Communications’s debt level, has declined over the past 3 years from 26% to 24%.
What does this mean?
Himachal Futuristic Communications’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Recent positive growth doesn’t necessarily mean it’s onwards and upwards for the company. There may be factors that are impacting the industry as a whole, thus the high industry growth rate over the same time frame. You should continue to research Himachal Futuristic Communications to get a better picture of the stock by looking at:
- Financial Health: Are HFCL’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.
- Valuation: What is HFCL 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 HFCL is currently mispriced by the market.
- 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 March 2019. This may not be consistent with full year annual report figures.
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