It’s hard to get excited after looking at Deyun Holding’s recent performance (HKG: 1440), as its stock has fallen 31% in the past three months. But if you pay close attention to it, you might understand that its strong financial data could mean that the stock could potentially see its value rise in the long run, given how the markets typically reward companies with good health. financial. In particular, we will pay close attention to the ROE of Deyun Holding today.
ROE or return on equity is a useful tool to assess how effectively a company can generate the returns on investment it has received from its shareholders. Simply put, it is used to assess a company’s profitability against its equity.
Check out our latest analysis for Deyun Holding
How to calculate return on equity?
the formula for ROE is:
Return on equity = Net income (from continuing operations) ÷ Equity
Thus, based on the above formula, the ROE of Deyun Holding is:
13% = CN ¥ 42m CN ¥ 333m (Based on the last twelve months to June 2021).
The “return” is the annual profit. So this means that for every HK $ 1 invested by its shareholder, the company generates a profit of HK $ 0.13.
What is the relationship between ROE and profit growth?
We have already established that ROE is an effective indicator of profit generation for a company’s future profits. Based on how much of those profits the company reinvests or “withholds” and its efficiency, we are then able to assess a company’s profit growth potential. Generally speaking, all other things being equal, companies with high return on equity and high profit retention have a higher growth rate than companies that do not share these attributes.
Deyun Holding profit growth and 13% ROE
At first glance, Deyun Holding appears to have a decent ROE. Especially compared to the industry average of 7.6%, the company’s ROE looks pretty impressive. This certainly adds context to Deyun Holding’s decent 19% net income growth observed over the past five years.
Considering that the industry cut its profits by 5.3% over the same period, the growth in the company’s net income is quite impressive.
Profit growth is an important metric to consider when valuing a stock. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. This will help him determine if the future of the stock looks bright or worrisome. Is Deyun Holding fair valued compared to other companies? These 3 evaluation measures could help you decide.
Is Deyun Holding Using Profits Efficiently?
Deyun Holding does not pay any dividends, which means that all of its profits are reinvested in the company, which explains the good profit growth the company has experienced.
All in all, we are quite satisfied with the performance of Deyun Holding. In particular, we like the fact that the company is reinvesting heavily in its business, and at a high rate of return. Unsurprisingly, this led to impressive profit growth. If the company continues to grow earnings like it has, it could have a positive impact on its stock price given the influence of earnings per share on long-term stock prices. Remember that the price of a stock also depends on the perceived risk. Therefore, investors should keep themselves informed of the risks involved before investing in a business. You can see the 2 risks we have identified for Deyun Holding by visiting our risk dashboard for free on our platform here.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.