In this commentary, I will examine Straco Corporation Limited’s (SGX:S85) latest earnings update (30 September 2017) and compare these figures against its performance over the past couple of years, as well as how the rest of the hospitality industry performed. As an investor, I find it beneficial to assess S85’s trend over the short-to-medium term in order to gauge whether or not the company is able to meet its goals, and ultimately sustainably grow over time. View our latest analysis for Straco

Commentary On S85’s Past Performance

To account for any quarterly or half-yearly updates, I use data from the most recent 12 months, which annualizes the most recent half-year data, or in some cases, the latest annual report is already the most recent financial year data. This technique enables me to examine different companies in a uniform manner using new information. For Straco, its latest trailing-twelve-month earnings is S$47.81M, which compared to last year’s level, has increased by a fairly subdued 2.64%. Since these figures may be somewhat myopic, I’ve estimated an annualized five-year figure for Straco’s net income, which stands at S$34.04M This means on average, Straco has been able to increasingly improve its net income over the past few years as well.

What’s the driver of this growth? Let’s take a look at whether it is only because of industry tailwinds, or if Straco has seen some company-specific growth. The climb in earnings seems to be driven by a substantial top-line increase outpacing its growth rate of expenses. Though this resulted in a margin contraction, it has made Straco more profitable. Viewing growth from a sector-level, the SG hospitality industry has been growing its average earnings by double-digit 24.74% in the past year, . This is a change from a volatile drop of -5.55% in the last few years. This means in the recent industry expansion, Straco has not been able to gain as much as its industry peers.

What does this mean?

While past data is useful, it doesn’t tell the whole story. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? I suggest you continue to research Straco to get a better picture of the stock by looking at:

• 1. Financial Health: Is S85’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.

• 2. Valuation: What is S85 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 S85 is currently mispriced by the market.

• 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 September 2017. This may not be consistent with full year annual report figures.
To help readers see pass 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.