Is Hunan Aerospace Huanyu Communication Technology Co.,LTD.'s (SHSE:688523) Recent Stock Performance Influenced By Its Financials In Any Way?

Hunan Aerospace Huanyu Communication TechnologyLTD's (SHSE:688523) stock up by 7.0% over the past three months. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to investigate if the company's decent financials had a hand to play in the recent price move. Particularly, we will be paying attention to Hunan Aerospace Huanyu Communication TechnologyLTD's ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Put another way, it reveals the company's success at turning shareholder investments into profits.

See our latest analysis for Hunan Aerospace Huanyu Communication TechnologyLTD

How To Calculate Return On Equity?

Return on equity can be calculated by using the formula:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Hunan Aerospace Huanyu Communication TechnologyLTD is:

9.0% = CN¥145m ÷ CN¥1.6b (Based on the trailing twelve months to September 2024).

The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every CN¥1 worth of equity, the company was able to earn CN¥0.09 in profit.

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

Hunan Aerospace Huanyu Communication TechnologyLTD's Earnings Growth And 9.0% ROE

At first glance, Hunan Aerospace Huanyu Communication TechnologyLTD's ROE doesn't look very promising. However, the fact that the its ROE is quite higher to the industry average of 5.0% doesn't go unnoticed by us. This probably goes some way in explaining Hunan Aerospace Huanyu Communication TechnologyLTD's moderate 14% growth over the past five years amongst other factors. Bear in mind, the company does have a moderately low ROE. It is just that the industry ROE is lower. Therefore, the growth in earnings could also be the result of other factors. E.g the company has a low payout ratio or could belong to a high growth industry.

Next, on comparing Hunan Aerospace Huanyu Communication TechnologyLTD's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 12% over the last few years.

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. Is Hunan Aerospace Huanyu Communication TechnologyLTD fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Hunan Aerospace Huanyu Communication TechnologyLTD Making Efficient Use Of Its Profits?

While Hunan Aerospace Huanyu Communication TechnologyLTD has a three-year median payout ratio of 59% (which means it retains 41% of profits), the company has still seen a fair bit of earnings growth in the past, meaning that its high payout ratio hasn't hampered its ability to grow.

While Hunan Aerospace Huanyu Communication TechnologyLTD has been growing its earnings, it only recently started to pay dividends which likely means that the company decided to impress new and existing shareholders with a dividend.

Summary

In total, it does look like Hunan Aerospace Huanyu Communication TechnologyLTD has some positive aspects to its business. Especially the substantial growth in earnings backed by a decent ROE. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an 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 account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.