3SBio (HKG: 1530) had a rough three-month period with a 14% drop in its share price. But if you pay close attention to it, you might find that its key financial metrics look pretty decent, which could mean the stock could potentially rise in the long term given how markets typically reward long-term fundamentals. more resistant term. Specifically, we have decided to study the ROE of 3SBio in this article.
Return on equity or ROE is an important factor for a shareholder to consider, as it tells them how effectively their capital is being reinvested. Simply put, it is used to assess a company’s profitability against its equity.
See our latest review for 3SBio
How to calculate return on equity?
the formula for ROE is:
Return on equity = Net income (from continuing operations) Ã· Equity
So, based on the above formula, the ROE for 3SBio is:
6.9% = CN Â¥ 976m Ã· CN Â¥ 14b (Based on the last twelve months up to June 2021).
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 equity, the company was able to make HK $ 0.07 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. Based on how much of its profits the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. 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.
3SBio profit growth and ROE of 6.9%
At first glance, 3SBio’s ROE doesn’t look very promising. However, given that the company’s ROE is similar to the industry average ROE of 7.1%, we can think about it. Despite this, 3SBio posted fairly decent growth in its bottom line which grew at a rate of 8.3%. Given the slightly low ROE, it is likely that other aspects are 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 the growth of 3SBio is quite high compared to the industry average growth of 0.03% during the same period, which is great to see.
Profit growth is an important metric to consider when valuing a stock. It is important for an investor to know whether the market has factored in the expected growth (or decline) in company earnings. 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. Is 3SBio just valued over other companies? These 3 evaluation measures could help you decide.
Does 3SBio use its profits effectively?
Although the company has paid part of its dividend in the past, it currently does not pay any dividends. We deduce that the company has reinvested all its profits to develop its activity.
Overall, we think 3SBio has some positive attributes. Despite its low rate of return, the fact that the company reinvested a very large portion of its profits back into its business has undoubtedly contributed to the strong profit growth. We also looked at the latest analysts’ forecast and found that the company’s profit growth is expected to be similar to its current growth rate. 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. 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.