After looking at The Hong Kong and China Gas Company Limited’s (HKG:3) latest earnings announcement (30 June 2018), I found it useful to revisit the company’s performance in the past couple of years and assess this against the most recent figures. 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 Hong Kong and China Gas
Did 3 beat its long-term earnings growth trend and its industry?
3’s trailing twelve-month earnings (from 30 June 2018) of HK$8.5b has jumped 14% compared to the previous year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 3.3%, indicating the rate at which 3 is growing has accelerated. What’s the driver of this growth? Let’s see whether it is merely attributable to industry tailwinds, or if Hong Kong and China Gas has seen some company-specific growth.
In terms of returns from investment, Hong Kong and China Gas has fallen short of achieving a 20% return on equity (ROE), recording 14% instead. However, its return on assets (ROA) of 6.9% exceeds the HK Gas Utilities industry of 4.9%, indicating Hong Kong and China Gas has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Hong Kong and China Gas’s debt level, has increased over the past 3 years from 11% to 11%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 60% to 57% over the past 5 years.
What does this mean?
Hong Kong and China Gas’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 suggest you continue to research Hong Kong and China Gas to get a better picture of the stock by looking at:
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Future Outlook: What are well-informed industry analysts predicting for 3’s future growth? Take a look at our free research report of analyst consensus for 3’s outlook.
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Financial Health: Are 3’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.
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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.