When Xinyuan Real Estate Co Ltd (NYSE:XIN) announced its most recent earnings (31 March 2018), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Being able to interpret how well Xinyuan Real Estate has done so far requires weighing its performance against a benchmark, rather than looking at a standalone number at a point in time. In this article, I’ve summarized the key takeaways on how I see XIN has performed.
How Well Did XIN Perform?XIN’s trailing twelve-month earnings (from 31 March 2018) of US$45.76m has declined by -38.42% 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 -15.86%, indicating the rate at which XIN is growing has slowed down. Why could this be happening? Well, let’s take a look at what’s going on with margins and if the entire industry is facing the same headwind.
Revenue growth over the last few years, has been positive, however earnings growth has been falling. This implies that Xinyuan Real Estate has been increasing expenses, which is hurting margins and earnings, and is not a sustainable practice. Viewing growth from a sector-level, the US real estate industry has been growing its average earnings by double-digit 27.94% in the past year, and a less exciting 9.14% over the past five. This growth is a median of profitable companies of 24 Real Estate companies in US including Maui Land & Pineapple Company, Y. T. Realty Group and Yoma Strategic Holdings. This shows that whatever tailwind the industry is profiting from, Xinyuan Real Estate has not been able to leverage it as much as its average peer.In terms of returns from investment, Xinyuan Real Estate has not invested its equity funds well, leading to a 8.51% return on equity (ROE), below the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 1.36% is below the US Real Estate industry of 4.63%, indicating Xinyuan Real Estate’s are utilized less efficiently. However, its return on capital (ROC), which also accounts for Xinyuan Real Estate’s debt level, has increased over the past 3 years from 4.51% to 6.72%.
What does this mean?
Xinyuan Real Estate’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Typically companies that experience a prolonged period of reduction in earnings are going through some sort of reinvestment phase in order to keep up with the latest industry disruption and expansion. You should continue to research Xinyuan Real Estate to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for XIN’s future growth? Take a look at our free research report of analyst consensus for XIN’s outlook.
- Financial Health: Is XIN’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.
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 firstname.lastname@example.org.