Eastroc Beverage(Group) Co., Ltd.'s (SHSE:605499) Recent Stock Performance Looks Decent- Can Strong Fundamentals Be the Reason?

Most readers would already know that Eastroc Beverage(Group)'s (SHSE:605499) stock increased by 5.5% over the past three months. Since the market usually pay for a company’s long-term financial health, we decided to study the company’s fundamentals to see if they could be influencing the market. In this article, we decided to focus on Eastroc Beverage(Group)'s ROE.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

Check out our latest analysis for Eastroc Beverage(Group)

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 Eastroc Beverage(Group) is:

32% = CN¥2.2b ÷ CN¥7.0b (Based on the trailing twelve months to March 2024).

The 'return' is the income the business earned over the last year. That means that for every CN¥1 worth of shareholders' equity, the company generated CN¥0.32 in profit.

Why Is ROE Important For Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. 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.

Eastroc Beverage(Group)'s Earnings Growth And 32% ROE

To begin with, Eastroc Beverage(Group) has a pretty high ROE which is interesting. Second, a comparison with the average ROE reported by the industry of 16% also doesn't go unnoticed by us. Under the circumstances, Eastroc Beverage(Group)'s considerable five year net income growth of 27% was to be expected.

We then compared Eastroc Beverage(Group)'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 15% in the same 5-year period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is 605499 worth today? The intrinsic value infographic in our free research report helps visualize whether 605499 is currently mispriced by the market.

Is Eastroc Beverage(Group) Using Its Retained Earnings Effectively?

Eastroc Beverage(Group)'s three-year median payout ratio is a pretty moderate 49%, meaning the company retains 51% of its income. By the looks of it, the dividend is well covered and Eastroc Beverage(Group) is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Moreover, Eastroc Beverage(Group) is determined to keep sharing its profits with shareholders which we infer from its long history of three years of paying a dividend. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 49%. As a result, Eastroc Beverage(Group)'s ROE is not expected to change by much either, which we inferred from the analyst estimate of 35% for future ROE.

Conclusion

Overall, we are quite pleased with Eastroc Beverage(Group)'s performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. We also studied the latest analyst forecasts and found that the company's earnings growth is expected be similar to its current growth rate. 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.