Will the weakness in JS Global Lifestyle Company Limited (HKG:1691) shares prove temporary given the strong fundamentals?
With its stock down 27% in the past three months, it’s easy to overlook JS Global Lifestyle (HKG: 1691). However, a closer look at his healthy finances might make you think again. Since fundamentals generally determine long-term market outcomes, the company is worth looking into. In particular, we will pay attention to the ROE of JS Global Lifestyle today.
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 simpler terms, it measures a company’s profitability relative to equity.
Check out our latest analysis for JS Global Lifestyle
How do you calculate return on equity?
the ROE formula East:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for JS Global Lifestyle is:
22% = $461 million ÷ $2.1 billion (based on trailing 12 months to December 2021).
The “yield” is the amount earned after tax over the last twelve months. So this means that for every HK$1 investment of its shareholder, the company generates a profit of HK$0.22.
What does ROE have to do with earnings growth?
So far, we have learned that ROE measures how efficiently a company generates its profits. Based on the share of its profits that the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. 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.
JS Global Lifestyle earnings growth and 22% ROE
For starters, JS Global Lifestyle has a pretty high ROE, which is interesting. Additionally, the company’s ROE is above the industry average of 13%, which is quite remarkable. As a result, JS Global Lifestyle’s outstanding 54% net income growth over the past five years comes as no surprise.
In a next step, we benchmarked the growth of JS Global Lifestyle’s net income with the industry, and fortunately, we found that the growth seen by the company is above the industry average growth of 2.9. %.
Earnings growth is an important factor in stock valuation. What investors then need to determine is whether the expected earnings growth, or lack thereof, is already priced into the stock price. This will help them determine if the future of the title looks bright or ominous. If you’re wondering about JS Global Lifestyle’s valuation, check out this indicator of its price-earnings ratio, relative to its sector.
Does JS Global Lifestyle use its profits effectively?
The three-year median payout ratio for JS Global Lifestyle is 31%, which is moderately low. The company retains the remaining 69%. On the face of it, the dividend is well covered and JS Global Lifestyle is effectively reinvesting its earnings, as evidenced by its exceptional growth discussed above.
While JS Global Lifestyle has seen growth in earnings, it only recently started paying a dividend. Chances are the company has decided to impress new and existing shareholders with a dividend. Our latest analyst data shows that the company’s future payout ratio is expected to reach 44% over the next three years. Either way, ROE is not expected to change much for the company despite the higher expected payout ratio.
Overall, we believe JS Global Lifestyle’s performance has been quite good. Specifically, we like that the company reinvests a large portion of its earnings at a high rate of return. This of course caused the company to see substantial growth in profits. That said, a study of the latest analyst forecasts shows that the company should see a slowdown in future earnings growth. For more on the company’s future earnings growth forecast, check out this free analyst forecast report for the company to learn more.
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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.