Measuring Tesson Holdings Limited’s (HKG:1201) 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 1201’s recent performance announced on 30 June 2018 and compare these figures to its historical trend and industry movements.

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How Well Did 1201 Perform?

1201’s trailing twelve-month earnings (from 30 June 2018) of HK$193.3m has more than doubled from -HK$37.3m in the prior year. Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 32.6%, indicating the rate at which 1201 is growing has accelerated. What’s the driver of this growth? Let’s see whether it is merely attributable to an industry uplift, or if Tesson Holdings has seen some company-specific growth.

Over the past couple of years, Tesson Holdings increased bottom-line, while its top-line declined, by efficiently controlling its costs. This brought about to a margin expansion and profitability over time. Scanning growth from a sector-level, the HK packaging industry has been growing, albeit, at a unexciting single-digit rate of 8.0% in the prior twelve months, and 6.8% over the past half a decade. This growth is a median of profitable companies of 18 Packaging companies in HK including MS Group Holdings, Huajun Holdings and Huaxi Holdings. This suggests that any uplift the industry is profiting from, Tesson Holdings is able to leverage this to its advantage.

In terms of returns from investment, Tesson Holdings has fallen short of achieving a 20% return on equity (ROE), recording 13.0% instead. However, its return on assets (ROA) of 10.3% exceeds the HK Packaging industry of 6.0%, indicating Tesson Holdings has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Tesson Holdings’s debt level, has increased over the past 3 years from 7.0% to 11.4%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 66.8% to 16.8% over the past 5 years.

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 Tesson Holdings to get a better picture of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for 1201’s future growth? Take a look at our free research report of analyst consensus for 1201’s outlook.

2. Financial Health: Are 1201’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.