Is Bosideng International Holdings Limited’s (HKG:3998) Latest Stock Performance A Reflection Of Its Financial Health?

Bosideng International Holdings (HKG:3998) shares are up a whopping 13% over the past three months. 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 typically drives market results. In this article, we have chosen to focus on the ROE of Bosideng International Holdings.

Return on Equity or ROE is an important factor to consider by a shareholder as it tells them how effectively their capital is being reinvested. In other words, it shows the company’s success in turning shareholders’ investments into profits.

Check out our latest analysis for Bosideng International Holdings

How do you calculate return on equity?

The return on equity can be calculated using the following formula:

Return on Equity = Net Income (from continuing operations) ÷ Equity

So, based on the formula above, the ROE for Bosideng International Holdings is:

19% = CN¥2.2b ÷ CN¥12b (Based on trailing 12 months to September 2022).

“Yield” refers to a company’s profits over the last year. This means that for every HK$ invested by its shareholders, the company generates a profit of HK$0.19.

What does ROE have to do with earnings growth?

So far we’ve learned that ROE measures how efficiently a company generates its profits. We now need to evaluate how much profit the company is reinvesting or “keeping” for future growth, which then gives us an idea of ​​the company’s growth potential. Assuming all else remains the same, the higher the ROE and earnings retention, the higher a company’s growth rate compared to companies that don’t necessarily exhibit these characteristics.

Bosideng International Holdings earnings growth and 19% ROE

First off, Bosideng International Holdings appears to have a respectable ROE. Especially when compared to the industry average of 12%, the company’s ROE looks pretty impressive. Probably as a result, Bosideng International Holdings has posted an impressive 28% net income growth over the past five years. We believe there could be other aspects positively impacting the company’s earnings growth as well. For example, the company has a low payout ratio or is run efficiently.

As a next step, we compared Bosideng International Holdings’ net income growth to that of the industry and were pleased to find that the company’s growth exceeded the average industry growth of 3.3%.

Much of the basis for increasing the value of a company is tied to its earnings growth. The investor should try to determine whether expected growth or earnings decline, whichever is the case, is being priced in. That way, he’ll get an idea of ​​whether the stock is heading into clear blue waters or if swampy waters await. What is 3998 worth today? The intrinsic value infographic in our free research report helps visualize if 3998 is currently mispriced by the market.

Is Bosideng International Holdings using its profits efficiently?

Bosideng International Holdings has a significant three-year median payout ratio of 73%, meaning the company retains just 27% of its earnings. This means the company has been able to deliver strong earnings growth despite returning most of its profits to shareholders.

Also, Bosideng International Holdings has been paying dividends for at least ten years. This shows that the company has an obligation to share profits with its shareholders. Our latest analyst data shows that the company’s future payout ratio is expected to be around 74% over the next three years. As a result, Bosideng International Holdings’ ROE is not expected to change significantly either, which is what we derived from analyst estimate of 21% for future ROE.

Summary

Overall, we think Bosideng International Holdings has performed reasonably well. We’re particularly impressed with the company’s notable earnings growth, likely helped by its strong ROE. While the company pays out most of its earnings as dividends, it’s still been able to grow earnings, so that’s probably a good sign. Against this backdrop, a study of the latest analyst forecasts reveals that the company is likely to experience a slowdown in its future earnings growth. To learn more about the latest analyst forecasts for the company, check out this visualization of analyst forecasts for the company.

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This Simply Wall St article is of a general nature. We provide comments based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your goals or financial situation. Our goal is to offer you long-term focused analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.