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Investors with a long-term horizong may find it valuable to assess Tree Holdings Limited’s (SEHK:8395) earnings trend over time and against its industry benchmark as opposed to simply looking at a sincle earnings announcement at one point in time. Below is my commentary, albiet very simple and high-level, on how Tree Holdings is currently performing. Check out our latest analysis for Tree Holdings

Was 8395’s weak performance lately a part of a long-term decline?

For the purpose of this commentary, I like to use data from the most recent 12 months, which annualizes the most recent half-year data, or in some cases, the latest annual report is already the most recent financial year data. This technique allows me to examine various companies on a more comparable basis, using new information. For Tree Holdings, its most recent trailing-twelve-month earnings is -HK$7.26M, which, against the previous year’s figure, has become more negative. Since these figures may be fairly nearsighted, I’ve determined an annualized five-year value for Tree Holdings’s earnings, which stands at -HK$1.96M. This doesn’t seem to paint a better picture, since earnings seem to have consistently been getting more and more negative over time.

We can further examine Tree Holdings’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the past half a decade Tree Holdings’s top-line has grown by a mere 4.99%, on average. The company’s inability to breakeven has been aided by the relatively flat top-line in the past. Looking at growth from a sector-level, the HK retail distributors industry has been amplifying average earnings growth of 57.84% in the prior year, . This is a a notable change from a volatile drop of -14.22% in the previous few years. This means that any tailwind the industry is benefiting from, Tree Holdings has not been able to leverage it as much as its average peer.

What does this mean?

Though Tree Holdings’s past data is helpful, it is only one aspect of my investment thesis. With companies that are currently loss-making, it is always difficult to forecast what will occur going forward, and when. The most insightful step is to assess company-specific issues Tree Holdings may be facing and whether management guidance has steadily been met in the past. I recommend you continue to research Tree Holdings to get a more holistic view of the stock by looking at:

• 1. Financial Health: Is 8395’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.

• 2. Valuation: What is 8395 worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether 8395 is currently mispriced by the market.

• 3. 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 2017. This may not be consistent with full year annual report figures.
To help readers see pass 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.