After looking at Towngas China Company Limited's (SEHK:1083) latest earnings update (31 December 2019), I found it helpful to revisit the company's performance in the past couple of years and compare this against the latest numbers. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is an important aspect. In this article I briefly touch on my key findings.

Check out our latest analysis for Towngas China

Did 1083 beat its long-term earnings growth trend and its industry?

1083's trailing twelve-month earnings (from 31 December 2019) of HK$1.3b has increased by 6.9% compared to the previous year.

However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 7.9%, indicating the rate at which 1083 is growing has slowed down. To understand what's happening, let’s take a look at what’s occurring with margins and if the entire industry is facing the same headwind.

In terms of returns from investment, Towngas China has fallen short of achieving a 20% return on equity (ROE), recording 7.5% instead. Furthermore, its return on assets (ROA) of 4.3% is below the HK Gas Utilities industry of 4.4%, indicating Towngas China's are utilized less efficiently. However, its return on capital (ROC), which also accounts for Towngas China’s debt level, has increased over the past 3 years from 5.1% to 6.2%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 52% to 51% over the past 5 years.

What does this mean?

Towngas China's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. Companies that have performed well in the past, such as Towngas China gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. I recommend you continue to research Towngas China to get a better picture of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for 1083’s future growth? Take a look at our free research report of analyst consensus for 1083’s outlook.

2. Financial Health: Are 1083’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.

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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