Falling Stocks & Strong Fundamentals: Is the Market Wrong About Yeahka Limited (HKG: 9923)?
With its stock down 21% in the past three months, it’s easy to overlook Yeahka (HKG: 9923). 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 this article, we have decided to focus on Yeahka’s ROE.
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. In other words, it reveals the company’s success in turning shareholders’ investments into profits.
Check out our latest analysis for Yeahka
How is the ROE calculated?
the return on equity formula is:
Return on equity = Net income (from continuing operations) Ã· Equity
So, based on the above formula, Yeahka’s ROE is:
14% = CN Â¥ 441m Ã· CN Â¥ 3.2b (Based on the last twelve months up to December 2020).
The “return” is the income the business has earned over the past year. Another way to look at this is that for every HK $ 1 worth of shares, the company was able to make HK $ 0.14 in profit.
What does ROE have to do with profit growth?
We have already established that ROE is an effective indicator of profit generation for a company’s future profits. We now need to assess the profits that the business is reinvesting or âwithholdingâ for future growth, which then gives us an idea of ââthe growth potential of the business. Assuming everything else remains the same, the higher the ROE and profit retention, the higher the growth rate of a business compared to businesses that don’t necessarily have these characteristics.
A side-by-side comparison of Yeahka’s profit growth and 14% ROE
At first glance, Yeahka appears to have a decent ROE. Additionally, the company’s ROE compares quite favorably to the industry average of 11%. This likely laid the groundwork for Yeahka’s significant 85% net income growth over the past five years. However, there could also be other causes behind this growth. For example, the business has a low payout ratio or is managed efficiently.
Then comparing with the industry net income growth, we found that Yeahka’s growth is quite high compared to the industry average growth of 13% over the same period, which is great. to have.
Profit growth is an important metric to consider when valuing a stock. What investors next need to determine is whether the expected earnings growth, or lack thereof, is already built into the share price. By doing this, they will have an idea if the stock is heading for clear blue waters or if swampy waters are waiting for them. Has the market assessed the future outlook for 9923? You can find out in our latest Intrinsic Value infographic research report.
Is Yeahka effectively reinvesting its profits?
Overall, we think Yeahka’s performance has been quite good. 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. However, a study of the latest analysts’ forecasts shows that the company is likely to experience a slowdown in future earnings growth. Are the expectations of these analysts based on general industry expectations or on company fundamentals? Click here to go to our business analyst forecasts page.
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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares 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 material. Simply Wall St has no position in the mentioned stocks.
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