Measuring Lee and Man Paper Manufacturing Limited’s (HKG:2314) track record of past performance is an insightful exercise for investors. It enables us to reflect on whether the company has met or exceed expectations, which is a powerful signal for future performance. Below, I will assess 2314’s recent performance announced on 30 June 2018 and compare these figures to its historical trend and industry movements.

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Did 2314’s recent earnings growth beat the long-term trend and the industry?

2314’s trailing twelve-month earnings (from 30 June 2018) of HK$5.83b has jumped 60.7% compared to the previous year. Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 20.0%, indicating the rate at which 2314 is growing has accelerated. How has it been able to do this? Let’s see whether it is solely a result of an industry uplift, or if Lee and Man Paper Manufacturing has experienced some company-specific growth.

Over the past couple of years, Lee and Man Paper Manufacturing increased its bottom line faster than revenue by successfully controlling its costs. This resulted in a margin expansion and profitability over time. Looking at growth from a sector-level, the HK forestry industry has been growing its average earnings by double-digit 46.3% in the previous year, and 18.9% over the past five. This growth is a median of profitable companies of 6 Forestry companies in HK including China Wood Optimization (Holding), Da Sen Holdings Group and Hong Wei (Asia) Holdings. This shows that any tailwind the industry is gaining from, Lee and Man Paper Manufacturing is able to leverage this to its advantage.

In terms of returns from investment, Lee and Man Paper Manufacturing has invested its equity funds well leading to a 23.6% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 12.9% exceeds the HK Forestry industry of 8.1%, indicating Lee and Man Paper Manufacturing has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Lee and Man Paper Manufacturing’s debt level, has increased over the past 3 years from 10.0% to 21.1%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 64.7% to 64.6% over the past 5 years.

What does this mean?

Lee and Man Paper Manufacturing’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. While Lee and Man Paper Manufacturing has a good historical track record with positive growth and profitability, there’s no certainty that this will extrapolate into the future. I recommend you continue to research Lee and Man Paper Manufacturing to get a better picture of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for 2314’s future growth? Take a look at our free research report of analyst consensus for 2314’s outlook.

2. Financial Health: Are 2314’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 30 June 2018. This may not be consistent with full year annual report figures.

To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.