In This Article:
After reading Auto Italia Holdings Limited’s (HKG:720) most recent earnings announcement (30 June 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.
View our latest analysis for Auto Italia Holdings
How Did 720’s Recent Performance Stack Up Against Its Past?
720’s trailing twelve-month earnings (from 30 June 2018) of HK$62.2m has jumped 80.4% compared to the previous year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 44.4%, indicating the rate at which 720 is growing has accelerated. What’s the driver of this growth? Let’s see whether it is solely attributable to an industry uplift, or if Auto Italia Holdings has seen some company-specific growth.
In the last few years, Auto Italia Holdings grew bottom-line, while its top-line declined, by effectively managing its costs. This has caused to a margin expansion and profitability over time.
Inspecting growth from a sector-level, the HK specialty retail industry has been growing its average earnings by double-digit 34.3% in the past twelve months, . This is a turnaround from a volatile drop of -3.8% in the last couple of years. This growth is a median of profitable companies of 24 Specialty Retail companies in HK including Ulferts International, China Rundong Auto Group and Symphony Holdings. This shows that, in the recent industry expansion, Auto Italia Holdings is capable of amplifying this to its advantage.
In terms of returns from investment, Auto Italia Holdings has fallen short of achieving a 20% return on equity (ROE), recording 12.4% instead. However, its return on assets (ROA) of 10.8% exceeds the HK Specialty Retail industry of 7.4%, indicating Auto Italia Holdings has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Auto Italia Holdings’s debt level, has increased over the past 3 years from 11.6% to 12.0%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 104% to 3.4% over the past 5 years.
What does this mean?
Auto Italia Holdings’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? I recommend you continue to research Auto Italia Holdings to get a more holistic view of the stock by looking at: