Examining how Fire Rock Holdings Limited (SEHK:8345) is performing as a company requires looking at more than just a years’ earnings. Below, I will run you through a simple sense check to build perspective on how Fire Rock Holdings is doing by comparing its most recent earnings with its historical trend, in addition to the performance of its software industry peers. See our latest analysis for Fire Rock Holdings

How Did 8345’s Recent Performance Stack Up Against Its Past?

For the most up-to-date info, I 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 blend allows me to analyze different companies on a similar basis, using the most relevant data points. For Fire Rock Holdings, its latest trailing-twelve-month earnings is CN¥37.50M, which, in comparison to the previous year’s figure, has climbed up by more than double. Given that these values are fairly short-term, I’ve estimated an annualized five-year figure for Fire Rock Holdings’s net income, which stands at CN¥19.83M This means that, on average, Fire Rock Holdings has been able to increasingly improve its bottom line over the last couple of years as well.

What’s enabled this growth? Let’s see whether it is only due to an industry uplift, or if Fire Rock Holdings has seen some company-specific growth. In the past couple of years, Fire Rock Holdings increased its bottom line faster than revenue by efficiently controlling its costs. This has led to a margin expansion and profitability over time. Eyeballing growth from a sector-level, the HK software industry has been growing its average earnings by double-digit 18.19% in the past year, and a flatter 1.45% over the past half a decade. This shows that whatever uplift the industry is gaining from, Fire Rock Holdings is able to amplify this to its advantage.

What does this mean?

Though Fire Rock Holdings’s past data is helpful, it is only one aspect of my investment thesis. While Fire Rock Holdings has a good historical track record with positive growth and profitability, there’s no certainty that this will extrapolate into the future. You should continue to research Fire Rock Holdings to get a more holistic view of the stock by looking at:

• 1. Financial Health: Is 8345’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 8345 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 8345 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 30 September 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.