For investors with a long-term horizon, assessing earnings trend over time and against industry benchmarks is more valuable than looking at a single earnings announcement in one point in time. Investors may find my commentary, albeit very high-level and brief, on Chinese Energy Holdings Limited (SEHK:8009) useful as an attempt to give more color around how Chinese Energy Holdings is currently performing. View our latest analysis for Chinese Energy Holdings
Could 8009 beat the long-term trend and outperform its industry?
I prefer to use data from the most recent 12 months, which either annualizes the most recent 6-month earnings update, or in some cases, the most recent annual report is already the latest available financial data. This method enables me to assess different stocks on a similar basis, using the most relevant data points. For Chinese Energy Holdings, its latest trailing-twelve-month earnings is -HK$16.57M, which, in comparison to the previous year’s figure, has become less negative. Given that these values are somewhat nearsighted, I’ve created an annualized five-year value for Chinese Energy Holdings’s net income, which stands at -HK$118.61M. This means even though net income is negative, it has become less negative over the years.
We can further evaluate Chinese Energy Holdings’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the past five years Chinese Energy Holdings’s top-line has increased by 29.97% on average, signalling that the company is in a high-growth period with expenses racing ahead revenues, leading to annual losses. Viewing growth from a sector-level, the HK trade distributors industry has been growing its average earnings by double-digit 22.65% over the prior year, and 15.50% over the past half a decade. This means though Chinese Energy Holdings is currently running a loss, it may have benefited from industry tailwinds, moving earnings into a more favorable position.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Companies that incur net loss is always hard to predict what will happen in the future and when. The most valuable step is to assess company-specific issues Chinese Energy Holdings may be facing and whether management guidance has consistently been met in the past. I recommend you continue to research Chinese Energy Holdings to get a better picture of the stock by looking at:
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1. Financial Health: Is 8009’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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2. Valuation: What is 8009 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 8009 is currently mispriced by the market.
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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 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.