Could The Market Be Wrong About Cofco Sugar Holding CO.,LTD. (SHSE:600737) Given Its Attractive Financial Prospects?

It is hard to get excited after looking at Cofco Sugar HoldingLTD's (SHSE:600737) recent performance, when its stock has declined 12% over the past month. But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. Specifically, we decided to study Cofco Sugar HoldingLTD's ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

See our latest analysis for Cofco Sugar HoldingLTD

How Is ROE Calculated?

The formula for ROE is:

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

So, based on the above formula, the ROE for Cofco Sugar HoldingLTD is:

19% = CN¥2.3b ÷ CN¥12b (Based on the trailing twelve months to March 2024).

The 'return' is the amount earned after tax over the last twelve months. So, this means that for every CN¥1 of its shareholder's investments, the company generates a profit of CN¥0.19.

What Has ROE Got To Do With Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

A Side By Side comparison of Cofco Sugar HoldingLTD's Earnings Growth And 19% ROE

To start with, Cofco Sugar HoldingLTD's ROE looks acceptable. On comparing with the average industry ROE of 8.1% the company's ROE looks pretty remarkable. Probably as a result of this, Cofco Sugar HoldingLTD was able to see an impressive net income growth of 32% over the last five years. We reckon that there could also be other factors at play here. For instance, the company has a low payout ratio or is being managed efficiently.

We then compared Cofco Sugar HoldingLTD's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 2.9% in the same 5-year period.

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. What is 600737 worth today? The intrinsic value infographic in our free research report helps visualize whether 600737 is currently mispriced by the market.

Is Cofco Sugar HoldingLTD Making Efficient Use Of Its Profits?

The three-year median payout ratio for Cofco Sugar HoldingLTD is 45%, which is moderately low. The company is retaining the remaining 55%. By the looks of it, the dividend is well covered and Cofco Sugar HoldingLTD is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Besides, Cofco Sugar HoldingLTD has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders.

Summary

Overall, we are quite pleased with Cofco Sugar HoldingLTD's performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. Having said that, on studying current analyst estimates, we were concerned to see that while the company has grown its earnings in the past, analysts expect its earnings to shrink in the future. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com