Improvement in profitability and outperformance against the industry can be important characteristics in a stock for some investors. Below, I will assess Shanghai Prime Machinery Company Limited’s (HKG:2345) 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.

View our latest analysis for Shanghai Prime Machinery

Commentary On 2345’s Past Performance

2345’s trailing twelve-month earnings (from 30 June 2018) of CN¥281m has jumped 13% compared to the previous year.

However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 29%, indicating the rate at which 2345 is growing has slowed down. To understand what’s happening, let’s examine what’s going on with margins and if the rest of the industry is facing the same headwind.

In terms of returns from investment, Shanghai Prime Machinery has fallen short of achieving a 20% return on equity (ROE), recording 7.4% instead. Furthermore, its return on assets (ROA) of 4.0% is below the HK Machinery industry of 4.7%, indicating Shanghai Prime Machinery’s are utilized less efficiently. However, its return on capital (ROC), which also accounts for Shanghai Prime Machinery’s debt level, has increased over the past 3 years from 4.0% to 4.8%.

What does this mean?

Though Shanghai Prime Machinery’s past data is helpful, it is only one aspect of my investment thesis. Companies that have performed well in the past, such as Shanghai Prime Machinery gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. You should continue to research Shanghai Prime Machinery to get a more holistic view of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for 2345’s future growth? Take a look at our free research report of analyst consensus for 2345’s outlook.

2. Financial Health: Are 2345’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.