For investors with a long-term horizon, assessing earnings trend over time and against industry benchmarks is more valuable than looking at a single earnings announcement in one point in time. Investors may find my commentary, albeit very high-level and brief, on Kingdom Holdings Limited (SEHK:528) useful as an attempt to give more color around how Kingdom Holdings is currently performing. Check out our latest analysis for Kingdom Holdings
Despite a decline, did 528 underperform the long-term trend and the industry?
For the purpose of this commentary, I like to use the ‘latest twelve-month’ data, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This technique allows me to analyze different stocks on a more comparable basis, using the most relevant data points. For Kingdom Holdings, its most recent bottom-line (trailing twelve month) is CN¥35.6M, which, against the previous year’s level, has dropped by a substantial -62.99%. Given that these figures may be somewhat short-term thinking, I have calculated an annualized five-year value for Kingdom Holdings’s earnings, which stands at CN¥96.5M. This doesn’t seem to paint a better picture, as earnings seem to have steadily been diminishing over time.
Why could this be happening? Let’s examine what’s occurring with margins and if the entire industry is feeling the heat. Revenue growth in the past few years, has been positive, however earnings growth has been deteriorating. This means Kingdom Holdings has been ramping up expenses, which is hurting margins and earnings, and is not a sustainable practice. Viewing growth from a sector-level, the HK luxury industry has been enduring some headwinds over the last couple of years, leading to an average earnings drop of -5.09% in the most recent year. This means any headwind the industry is enduring, it’s hitting Kingdom Holdings harder than its peers.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Typically companies that endure a prolonged period of decline in earnings are going through some sort of reinvestment phase . However, if the entire industry is struggling to grow over time, it may be a sign of a structural shift, which makes Kingdom Holdings and its peers a riskier investment. I recommend you continue to research Kingdom Holdings to get a better picture of the stock by looking at:
1. Financial Health: Is 528’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.