Huakai Yibai Technology Co.,Ltd.'s (SZSE:300592) Stock Been Rising: Are Strong Financials Guiding The Market?

Simply Wall St · Dec 21, 2023 08:57

Huakai Yibai TechnologyLtd's (SZSE:300592) stock up by 8.1% over the past three months. Given its impressive performance, we decided to study the company's key financial indicators as a company's long-term fundamentals usually dictate market outcomes. Specifically, we decided to study Huakai Yibai TechnologyLtd's ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors' money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

Check out our latest analysis for Huakai Yibai TechnologyLtd

How Do You Calculate Return On Equity?

ROE can be calculated by using the formula:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Huakai Yibai TechnologyLtd is:

19% = CN¥401m ÷ CN¥2.1b (Based on the trailing twelve months to September 2023).

The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each CN¥1 of shareholders' capital it has, the company made CN¥0.19 in profit.

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don't share these attributes.

Huakai Yibai TechnologyLtd's Earnings Growth And 19% ROE

To start with, Huakai Yibai TechnologyLtd's ROE looks acceptable. Especially when compared to the industry average of 7.5% the company's ROE looks pretty impressive. Probably as a result of this, Huakai Yibai TechnologyLtd was able to see an impressive net income growth of 59% over the last five years. We reckon that there could also be other factors at play here. Such as - high earnings retention or an efficient management in place.

Next, on comparing with the industry net income growth, we found that the growth figure reported by Huakai Yibai TechnologyLtd compares quite favourably to the industry average, which shows a decline of 2.1% over the last few years.

past-earnings-growth — SZSE:300592 Past Earnings Growth December 21st 2023

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. Is Huakai Yibai TechnologyLtd fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Huakai Yibai TechnologyLtd Making Efficient Use Of Its Profits?

Huakai Yibai TechnologyLtd doesn't pay any dividend to its shareholders, meaning that the company has been reinvesting all of its profits into the business. This is likely what's driving the high earnings growth number discussed above.

Conclusion

Overall, we are quite pleased with Huakai Yibai TechnologyLtd's performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.