After reading China Everbright Water Limited’s (SGX:U9E) most recent earnings announcement (31 December 2018), 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.
Did U9E’s recent earnings growth beat the long-term trend and the industry?
U9E’s trailing twelve-month earnings (from 31 December 2018) of HK$676m has jumped 32% compared to the previous year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 18%, indicating the rate at which U9E is growing has accelerated. What’s enabled this growth? Let’s take a look at whether it is solely because of an industry uplift, or if China Everbright Water has experienced some company-specific growth.
In terms of returns from investment, China Everbright Water has fallen short of achieving a 20% return on equity (ROE), recording 8.5% instead. However, its return on assets (ROA) of 4.9% exceeds the SG Water Utilities industry of 4.7%, indicating China Everbright Water has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for China Everbright Water’s debt level, has increased over the past 3 years from 6.5% to 7.6%.
What does this mean?
China Everbright Water’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Companies that have performed well in the past, such as China Everbright Water gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. I suggest you continue to research China Everbright Water to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for U9E’s future growth? Take a look at our free research report of analyst consensus for U9E’s outlook.
- Financial Health: Are U9E’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.
- 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.
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