When MTR Corporation Limited’s (HKG:66) announced its latest earnings (31 December 2018), I wanted to understand how these figures stacked up against its past performance. The two benchmarks I used were MTR’s average earnings over the past couple of years, and its industry performance. These are useful yardsticks to help me gauge whether or not 66 actually performed well. Below is a quick commentary on how I see 66 has performed.
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Did 66 perform worse than its track record and industry?
66’s trailing twelve-month earnings (from 31 December 2018) of HK$16b has declined by -4.9% 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 1.7%, indicating the rate at which 66 is growing has slowed down. Why is this? Well, let’s look at what’s transpiring with margins and if the whole industry is facing the same headwind.
In terms of returns from investment, MTR has fallen short of achieving a 20% return on equity (ROE), recording 8.9% instead. However, its return on assets (ROA) of 6.2% exceeds the HK Transportation industry of 4.5%, indicating MTR has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for MTR’s debt level, has declined over the past 3 years from 5.9% to 5.4%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 16% to 22% over the past 5 years.
What does this mean?
Though MTR’s past data is helpful, it is only one aspect of my investment thesis. Companies that are profitable, but have unpredictable earnings, can have many factors influencing its business. You should continue to research MTR to get a more holistic view of the stock by looking at:
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Future Outlook: What are well-informed industry analysts predicting for 66’s future growth? Take a look at our free research report of analyst consensus for 66’s outlook.
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Financial Health: Are 66’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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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 2018. This may not be consistent with full year annual report figures.
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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.