Today I will examine Gome Finance Technology Co Ltd’s (SEHK:628) latest earnings update (31 December 2016) and compare these figures against its performance over the past couple of years, in addition to how the rest of 628’s industry performed. As a long-term investor, I find it useful to analyze the company’s trend over time in order to estimate whether or not the company is able to meet its goals, and eventually grow sustainably over time. Check out our latest analysis for Gome Finance Technology

Was 628 weak performance lately part of a long-term decline?

I look at 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 method enables me to assess various companies on a more comparable basis, using the most relevant data points. For Gome Finance Technology, its most recent twelve-month earnings is -CN¥42.2M, which, relative to last year’s level, has become more negative. Since these figures may be somewhat short-term, I have created an annualized five-year figure for 628’s earnings, which stands at -CN¥33.5M. This doesn’t seem to paint a better picture, since earnings seem to have steadily been getting more and more negative over time.

Additionally, we can assess Gome Finance Technology’s loss by looking at what has been happening in the industry as well as within the company. Initially, I want to quickly look into the line items. Revenue growth over the last few years has been negative at -11.01%. The key to profitability here is to make sure the company’s cost growth is well-managed. Viewing growth from a sector-level, the HK mortgage industry has been growing its average earnings by double-digit 11.49% in the past year, and 12.96% over the past five years. This means any uplift the industry is benefiting from, Gome Finance Technology has not been able to leverage it as much as its industry peers.

What does this mean?

While past data is useful, it doesn’t tell the whole story. Companies that incur net loss is always difficult to envisage what will happen in the future and when. The most useful step is to assess company-specific issues Gome Finance Technology may be facing and whether management guidance has consistently been met in the past. I recommend you continue to research Gome Finance Technology to get a better picture of the stock by looking at:

1. Financial Health: Is 628’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. 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 last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. 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.