After reading MTR Corporation Limited's (SEHK:66) latest earnings update (30 June 2019), I found it beneficial to look back at how the company has performed in the past and compare this against the most recent numbers. As a long-term investor I tend to pay attention to earnings trend, rather than a single number at one point in time. I also like to compare against an industry benchmark to understand whether 66 has outperformed, or whether it is simply riding an industry wave. Below is a brief commentary on my key takeaways.

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Was 66's recent earnings decline worse than the long-term trend and the industry?

66's trailing twelve-month earnings (from 30 June 2019) of HK$14b has declined by -12% 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 1.8%, indicating the rate at which 66 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 rest of the industry is feeling the heat.

In terms of returns from investment, MTR has fallen short of achieving a 20% return on equity (ROE), recording 8.1% instead. However, its return on assets (ROA) of 5.4% exceeds the HK Transportation industry of 4.5%, indicating MTR has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for MTR’s debt level, has declined over the past 3 years from 5.2% to 5.0%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 14% to 20% over the past 5 years.

What does this mean?

While past data is useful, it doesn’t tell the whole story. Companies that are profitable, but have volatile earnings, can have many factors influencing its business. I suggest you continue to research MTR to get a better picture of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for 66’s future growth? Take a look at our free research report of analyst consensus for 66’s outlook.

2. Financial Health: Are 66’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 30 June 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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