The fundamentals of Bosideng International Holdings Limited (HKG: 3998) look pretty strong: Could the market be wrong about the stock?

Bosideng International Holdings (HKG: 3998) had a tough week with its share price down 14%. 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 be paying close attention to the ROE of Bosideng International Holdings today.

Return on equity or ROE is a key metric used to assess the efficiency with which the management of a business is using business capital. In other words, it is a profitability ratio that measures the rate of return on capital contributed by the shareholders of the company.

See our latest analysis for Bosideng International Holdings

How is the ROE calculated?

The formula for ROE is:

Return on equity = Net income (from continuing operations) ÷ Equity

Thus, based on the above formula, the ROE of Bosideng International Holdings is:

15% = CN ¥ 1.7b ÷ CN ¥ 11b (based on the last twelve months up to March 2021).

“Return” refers to a company’s profits over the past year. This means that for every HK $ 1 worth of equity, the company generated HK $ 0.15 in profit.

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. We now need to assess how much profit the company is reinvesting or “holding back” for future growth, which then gives us an idea of ​​the growth potential of the company. Assuming everything else is equal, companies that have both a higher return on equity and higher profit retention are generally those that have a higher growth rate compared to companies that do not. the same characteristics.

Bosideng International Holdings profit growth and 15% ROE

For starters, Bosideng International Holdings appears to have a respectable ROE. Additionally, the company’s ROE compares quite favorably to the industry average of 7.6%. This certainly adds context to the exceptional 35% net profit growth of Bosideng International Holdings observed over the past five years. We believe that there could also be other aspects that positively influence the company’s profit growth. For example, the business has a low payout ratio or is managed efficiently.

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.

SEHK: 3,998 Past Profit Growth September 29, 2021

The basis for attaching value to a business is, to a large extent, related to the growth of its profits. It is important for an investor to know whether the market has factored in the expected growth (or decline) in company earnings. This will help them determine whether the future of the stock looks bright or threatening. Is the value of Bosideng International Holdings fair compared to other companies? These 3 evaluation measures could help you decide.

Is Bosideng International Holdings Efficiently Using Its Retained Earnings?

Bosideng International Holdings has a large three-year median payout ratio of 71%, which means the company only keeps 29% of its revenue. This implies that the company has been able to achieve high profit growth despite returning most of its profits to shareholders.

Additionally, Bosideng International Holdings has paid dividends over a period of at least ten years, which means the company is very serious about sharing its profits with its shareholders. Our latest analyst data shows that the company’s future payout ratio over the next three years is expected to be around 72%. Anyway, Bosideng International Holdings’ future ROE should reach 23% despite the little change expected in its payout ratio.

Summary

Overall, we think the performance of Bosideng International Holdings has been quite good. In particular, his high ROE is quite remarkable and also the probable explanation for his considerable growth in earnings. Yet the company retains a small portion of its profits. Which means the company was able to increase its profits despite this, so it’s not that bad. That said, the latest forecast from industry analysts shows that the company’s earnings growth is expected to slow. To learn more about the company’s future earnings growth forecast, take a look at this free analyst forecast report for the company to learn more.

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 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 documents. Simply Wall St does not have any position in the mentioned stocks.

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