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Assessing Lee & Man Chemical Company Limited's (SEHK:746) past track record of performance is a useful exercise for investors. It allows us to understand whether the company has met or exceed expectations, which is a great indicator for future performance. Below, I assess 746's latest performance announced on 31 December 2019 and evaluate these figures to its historical trend and industry movements.
See our latest analysis for Lee & Man Chemical
Was 746's weak performance lately a part of a long-term decline?
746's trailing twelve-month earnings (from 31 December 2019) of HK$701m has declined by -20% 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 27%, indicating the rate at which 746 is growing has slowed down. Why is this? Well, let's look at what's occurring with margins and whether the rest of the industry is facing the same headwind.
In terms of returns from investment, Lee & Man Chemical has fallen short of achieving a 20% return on equity (ROE), recording 18% instead. However, its return on assets (ROA) of 13% exceeds the HK Chemicals industry of 6.6%, indicating Lee & Man Chemical has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Lee & Man Chemical’s debt level, has increased over the past 3 years from 9.0% to 17%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 84% to 39% over the past 5 years.
What does this mean?
Though Lee & Man Chemical's past data is helpful, it is only one aspect of my investment thesis. Companies that are profitable, but have volatile earnings, can have many factors impacting its business. I recommend you continue to research Lee & Man Chemical to get a better picture of the stock by looking at:
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Financial Health: Are 746’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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Valuation: What is 746 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 746 is currently mispriced by the market.
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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.
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.