Today I will take a look at Chow Tai Fook Jewellery Group Limited’s (SEHK:1929) most recent earnings update (30 September 2017) and compare these latest figures against its performance over the past few years, as well as how the rest of the specialty retail industry performed. As an investor, I find it beneficial to assess 1929’s trend over the short-to-medium term in order to gauge whether or not the company is able to meet its goals, and ultimately sustainably grow over time. Check out our latest analysis for Chow Tai Fook Jewellery Group
Could 1929 beat the long-term trend and outperform its industry?
I prefer to use data from the most recent 12 months, which either annualizes the most recent 6-month earnings update, or in some cases, the most recent annual report is already the latest available financial data. This technique allows me to analyze various companies on a more comparable basis, using the latest information. For Chow Tai Fook Jewellery Group, the most recent earnings is HK$3,612.6M, which compared to the previous year’s figure, has increased by 38.64%. Given that these values are relatively nearsighted, I’ve computed an annualized five-year figure for Chow Tai Fook Jewellery Group’s net income, which stands at HK$4,965.4M. This means although earnings increased from last year’s level, over the past couple of years, Chow Tai Fook Jewellery Group’s earnings have been declining on average.
Why is this? Let’s examine what’s occurring with margins and if the rest of the industry is facing the same headwind. Revenue growth in the past couple of years, has been positive, yet earnings growth has been deteriorating. This suggest that Chow Tai Fook Jewellery Group 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 specialty retail industry has been growing its average earnings by double-digit 21.17% over the prior year, . This is a turnaround from a volatile drop of -6.87% in the previous few years. This shows that, in the recent industry expansion, Chow Tai Fook Jewellery Group is capable of leveraging this to its advantage.
What does this mean?
Though Chow Tai Fook Jewellery Group’s past data is helpful, it is only one aspect of my investment thesis. Recent positive growth isn’t always indicative of a continued optimistic outlook. There could be variables that are influencing the entire industry thus the high industry growth rate over the same period of time. I suggest you continue to research Chow Tai Fook Jewellery Group to get a better picture of the stock by looking at: