Improvement in profitability and outperformance against the industry can be important characteristics in a stock for some investors. Below, I will assess OUE Limited’s (SGX:LJ3) track record on a high level, to give you some insight into how the company has been performing against its historical trend and its industry peers.
See our latest analysis for OUE
Was LJ3’s recent earnings decline indicative of a tough track record?
LJ3’s trailing twelve-month earnings (from 30 June 2018) of S$87.1m has declined by -32.2% 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 -13.6%, indicating the rate at which LJ3 is growing has slowed down. Why could this be happening? Well, let’s look at what’s occurring with margins and whether the rest of the industry is feeling the heat.
Revenue growth in the past few years, has been positive, yet earnings growth has been deteriorating. This suggest that OUE has been ramping up expenses, which is harming margins and earnings, and is not a sustainable practice. Eyeballing growth from a sector-level, the SG real estate industry has been growing its average earnings by double-digit 33.8% in the past twelve months, . This is a turnaround from a volatile drop of -2.4% in the last couple of years. This growth is a median of profitable companies of 24 Real Estate companies in SG including Yoma Strategic Holdings, Hong Lai Huat Group and GSH. This means in the recent industry expansion, OUE has not been able to reap as much as its average peer.
In terms of returns from investment, OUE has fallen short of achieving a 20% return on equity (ROE), recording 3.0% instead. Furthermore, its return on assets (ROA) of 2.2% is below the SG Real Estate industry of 3.7%, indicating OUE’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for OUE’s debt level, has declined over the past 3 years from 1.8% to 0.9%.
What does this mean?
OUE’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. In some cases, companies that experience an extended period of reduction in earnings are going through some sort of reinvestment phase in order to keep up with the latest industry disruption and growth. I recommend you continue to research OUE to get a better picture of the stock by looking at:
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Future Outlook: What are well-informed industry analysts predicting for LJ3’s future growth? Take a look at our free research report of analyst consensus for LJ3’s outlook.
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Financial Health: Are LJ3’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.