Examining China Machinery Engineering Corporation’s (SEHK:1829) past track record of performance is an insightful exercise for investors. It allows us to reflect on whether or not the company has met or exceed expectations, which is a great indicator for future performance. Today I will assess 1829’s latest performance announced on 30 June 2017 and compare these figures to its longer term trend and industry movements. Check out our latest analysis for China Machinery Engineering

Did 1829 perform worse than its track record and industry?

For the purpose of this commentary, I like 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 enables me to analyze various companies on a more comparable basis, using the most relevant data points. “For China Machinery Engineering, its “, most recent earnings is CN¥1,916.1M, which, in comparison to the previous year’s level, has dropped by -7.35%. Given that these values may be fairly short-term, I’ve estimated an annualized five-year value for China Machinery Engineering’s net income, which stands at CN¥1,939.5M. This doesn’t look much better, since earnings seem to have gradually been deteriorating over the longer term.

Why is this? Let’s examine what’s occurring with margins and if the entire industry is feeling the heat. In the last couple of years, revenue growth has failed to keep up which implies that China Machinery Engineering’s bottom line has been driven by unmaintainable cost-cutting. Looking at growth from a sector-level, the HK construction and engineering industry has been enduring some headwinds in the past twelve months, leading to average earnings dropping by more than half. This is a a strong change, given that the industry has been delivering a relatively flat growth rate over the past few years. This means that whatever recent headwind the industry is experiencing, it’s hitting China Machinery Engineering harder than its peers.

What does this mean?

While past data is useful, it doesn’t tell the whole story. Generally companies that experience an extended period of reduction in earnings are going through some sort of reinvestment phase . However, if the entire industry is struggling to grow over time, it may be a indicator of a structural change, which makes China Machinery Engineering and its peers a higher risk investment. You should continue to research China Machinery Engineering to get a more holistic view of the stock by looking at: