After looking at Fairwood Holdings Limited's (HKG:52) latest earnings update (31 March 2019), I found it helpful to revisit the company's performance in the past couple of years and compare this against the latest numbers. 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 an important aspect. In this article I briefly touch on my key findings.

View our latest analysis for Fairwood Holdings

Was 52 weak performance lately part of a long-term decline?

52's trailing twelve-month earnings (from 31 March 2019) of HK$180m has declined by -17% compared to the previous year.

Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 11%, indicating the rate at which 52 is growing has slowed down. What could be happening here? Well, let’s take a look at what’s occurring with margins and whether the entire industry is facing the same headwind.

In terms of returns from investment, Fairwood Holdings has invested its equity funds well leading to a 23% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 13% exceeds the HK Hospitality industry of 4.7%, indicating Fairwood Holdings has used its assets more efficiently. However, its return on capital (ROC), which also accounts for Fairwood Holdings’s debt level, has declined over the past 3 years from 33% to 26%.

What does this mean?

Though Fairwood Holdings's past data is helpful, it is only one aspect of my investment thesis. Companies that are profitable, but have capricious earnings, can have many factors impacting its business. You should continue to research Fairwood Holdings to get a more holistic view of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for 52’s future growth? Take a look at our free research report of analyst consensus for 52’s outlook.

2. Financial Health: Are 52’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 March 2019. This may not be consistent with full year annual report figures.

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.

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. Thank you for reading.