Ocean One Holding (HKG:8476) stock is up 12% in the past month. Given the company’s impressive performance, we decided to take a closer look at its financial metrics, as a company’s long-term financial health usually dictates market outcomes. In this article, we decided to focus on the ROE of Ocean One Holding.
ROE or return on equity is a useful tool for evaluating how effectively a company can generate returns on the investment it has received from its shareholders. In short, ROE shows the profit that each dollar generates in relation to the investments of its shareholders.
Discover our latest analysis for Ocean One Holding
How is ROE calculated?
Return on equity can be calculated using the formula:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for Ocean One Holding is:
20% = HK$34 million ÷ HK$173 million (based on trailing 12 months to September 2021).
“Yield” refers to a company’s earnings over the past year. Another way to think about this is that for every HK$1 of equity, the company was able to make a profit of HK$0.20.
Why is ROE important for earnings growth?
So far, we have learned that ROE measures how efficiently a company generates its profits. We now need to assess how much profit the company is reinvesting or “retaining” for future growth, which then gives us an idea of the company’s growth potential. Assuming all else is equal, companies that have both a higher return on equity and better earnings retention are generally the ones with a higher growth rate compared to companies that don’t. same characteristics.
Profit growth and 20% ROE of Ocean One Holding
For starters, Ocean One Holding appears to have a respectable ROE. Especially when compared to the industry average of 10%, the company’s ROE looks pretty impressive. Probably because of this, Ocean One Holding has been able to see an impressive net income growth of 21% over the past five years. We believe there could be other factors at play here as well. For example, the business has a low payout ratio or is efficiently managed.
In a next step, we compared Ocean One Holding’s net income growth with the industry, and fortunately, we found that the growth the company saw was above the industry average growth of 11%. .
Earnings growth is an important metric to consider when evaluating a stock. What investors then need to determine is whether the expected earnings growth, or lack thereof, is already priced into the stock price. By doing so, they will get an idea if the stock is headed for clear blue waters or if swampy waters are waiting. Is Ocean One Holding correctly valued compared to other companies? These 3 assessment metrics might help you decide.
Does Ocean One Holding use its profits efficiently?
Ocean One Holding’s three-year median payout ratio is a rather moderate 27%, meaning the company retains 73% of its revenue. This suggests that its dividend is well covered, and given the strong growth we discussed above, it appears that Ocean One Holding is reinvesting its earnings effectively.
In addition, Ocean One Holding pays dividends over a four-year period. This shows that the company is committed to sharing profits with its shareholders.
Overall, we believe Ocean One Holding’s performance has been quite good. In particular, we appreciate the fact that the company is reinvesting heavily in its business, and at a high rate of return. Unsurprisingly, this led to impressive earnings growth. If the company continues to increase its earnings as it has, it could have a positive impact on its share price given how earnings per share influence prices over the long term. Remember that the price of a stock also depends on the perceived risk. Therefore, investors should be aware of the risks involved before investing in a company. You can see the 3 risks we have identified for Ocean One 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 only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.