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In this commentary, I will examine Texhong Textile Group Limited’s (SEHK:2678) latest earnings update (31 December 2017) and compare these figures against its performance over the past couple of years, as well as how the rest of the luxury industry performed. As an investor, I find it beneficial to assess 2678’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. See our latest analysis for Texhong Textile Group
Did 2678 perform worse than its track record and industry?
To account for any quarterly or half-yearly updates, I use the ‘latest twelve-month’ data, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This method enables me to assess different stocks on a similar basis, using the latest information. For Texhong Textile Group, its latest earnings (trailing twelve month) is CN¥1.15B, which, relative to the previous year’s level, has dropped by -3.00%. Given that these figures are relatively myopic, I have created an annualized five-year figure for Texhong Textile Group’s net income, which stands at CN¥693.68M This means although earnings growth was negative from the previous year, over the longer term, Texhong Textile Group’s profits have been rising on average.
What’s the driver of this growth? Let’s see if it is merely a result of industry tailwinds, or if Texhong Textile Group has seen some company-specific growth. In the past couple of years, Texhong Textile Group grew its bottom line faster than revenue by efficiently controlling its costs. This resulted in a margin expansion and profitability over time. Inspecting growth from a sector-level, the HK luxury industry has been growing its average earnings by double-digit 12.73% in the previous year, . This is a turnaround from a volatile drop of -3.95% in the last couple of years. This means in the recent industry expansion, Texhong Textile Group has not been able to reap as much as its average peer.
What does this mean?
Texhong Textile Group’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Companies that are profitable, but have capricious earnings, can have many factors affecting its business. I recommend you continue to research Texhong Textile Group 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 2678’s future growth? Take a look at our free research report of analyst consensus for 2678’s outlook.
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Financial Health: Is 2678’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 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.