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Shenzhen Investment Limited (HKG:604): Has Recent Earnings Growth Beaten Long-Term Trend?

In this commentary, I will examine Shenzhen Investment Limited's (SEHK:604) latest earnings update (31 December 2019) and compare these figures against its performance over the past couple of years, as well as how the rest of the real estate industry performed. As an investor, I find it beneficial to assess 604’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.

View our latest analysis for Shenzhen Investment

How 604 fared against its long-term earnings performance and its industry

604's trailing twelve-month earnings (from 31 December 2019) of HK$4.1b has jumped 19% compared to the previous year.

Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 2.8%, indicating the rate at which 604 is growing has accelerated. How has it been able to do this? Let's take a look at if it is only a result of industry tailwinds, or if Shenzhen Investment has seen some company-specific growth.

SEHK:604 Income Statement April 1st 2020
SEHK:604 Income Statement April 1st 2020

In terms of returns from investment, Shenzhen Investment has fallen short of achieving a 20% return on equity (ROE), recording 9.0% instead. However, its return on assets (ROA) of 3.7% exceeds the HK Real Estate industry of 2.9%, indicating Shenzhen Investment has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Shenzhen Investment’s debt level, has declined over the past 3 years from 12% to 5.5%.

What does this mean?

Shenzhen Investment'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 Shenzhen Investment to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for 604’s future growth? Take a look at our free research report of analyst consensus for 604’s outlook.

  2. Financial Health: Are 604’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.

  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 2019. This may not be consistent with full year annual report figures.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.