Should You Be Concerned With Playmates Holdings Limited's (HKG:635) -20% Earnings Drop?
Increase in profitability and industry-beating performance can be essential considerations in a stock for some investors. In this article, I will take a look at Playmates Holdings Limited's (SEHK:635) track record on a high level, to give you some insight into how the company has been performing against its historical trend and its industry peers.
See our latest analysis for Playmates Holdings
Despite a decline, did 635 underperform the long-term trend and the industry?
635's trailing twelve-month earnings (from 31 December 2019) of HK$417m has declined by -20% compared to the previous year.
Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of -3.4%, indicating the rate at which 635 is growing has slowed down. What could be happening here? Well, let’s take a look at what’s going on with margins and if the whole industry is facing the same headwind.
In terms of returns from investment, Playmates Holdings has fallen short of achieving a 20% return on equity (ROE), recording 5.6% instead. Furthermore, its return on assets (ROA) of 5.4% is below the HK Leisure industry of 6.0%, indicating Playmates Holdings's are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Playmates Holdings’s debt level, has declined over the past 3 years from 5.4% to 2.2%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 6.5% to 11% over the past 5 years.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Usually companies that face a prolonged period of decline in earnings are undergoing some sort of reinvestment phase with the aim of keeping up with the latest industry expansion and disruption. You should continue to research Playmates Holdings to get a more holistic view of the stock by looking at:
Financial Health: Are 635’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.
Valuation: What is 635 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 635 is currently mispriced by the market.
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 2019. This may not be consistent with full year annual report figures.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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