Henan Shuanghui Investment & Development Co.,Ltd. (SZSE:000895) Is Going Strong But Fundamentals Appear To Be Mixed : Is There A Clear Direction For The Stock?

Most readers would already be aware that Henan Shuanghui Investment & DevelopmentLtd's (SZSE:000895) stock increased significantly by 9.8% over the past month. However, we wonder if the company's inconsistent financials would have any adverse impact on the current share price momentum. In this article, we decided to focus on Henan Shuanghui Investment & DevelopmentLtd's ROE.

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.

Check out our latest analysis for Henan Shuanghui Investment & DevelopmentLtd

How Do You 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 Henan Shuanghui Investment & DevelopmentLtd is:

22% = CN¥4.6b ÷ CN¥21b (Based on the trailing twelve months to June 2024).

The 'return' is the profit over the last twelve months. That means that for every CN¥1 worth of shareholders' equity, the company generated CN¥0.22 in profit.

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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 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 Henan Shuanghui Investment & DevelopmentLtd's Earnings Growth And 22% ROE

To start with, Henan Shuanghui Investment & DevelopmentLtd's ROE looks acceptable. Further, the company's ROE compares quite favorably to the industry average of 8.0%. However, we are curious as to how the high returns still resulted in flat growth for Henan Shuanghui Investment & DevelopmentLtd in the past five years. Based on this, we feel that there might be other reasons which haven't been discussed so far in this article that could be hampering the company's growth. Such as, the company pays out a huge portion of its earnings as dividends, or is faced with competitive pressures.

We then compared Henan Shuanghui Investment & DevelopmentLtd's net income growth with the industry and found that the company's growth figure is a bit less than the average industry growth rate of 1.9% in the same 5-year period.

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. What is 000895 worth today? The intrinsic value infographic in our free research report helps visualize whether 000895 is currently mispriced by the market.

Is Henan Shuanghui Investment & DevelopmentLtd Making Efficient Use Of Its Profits?

Henan Shuanghui Investment & DevelopmentLtd has a three-year median payout ratio as high as 103% meaning that the company is paying a dividend which is beyond its means. The absence in growth is therefore not surprising. Its usually very hard to sustain dividend payments that are higher than reported profits. This is indicative of risk.

Moreover, Henan Shuanghui Investment & DevelopmentLtd has been paying dividends for at least ten years or more suggesting that management must have perceived that the shareholders prefer dividends over earnings growth.

Conclusion

On the whole, we feel that the performance shown by Henan Shuanghui Investment & DevelopmentLtd can be open to many interpretations. Despite the high ROE, the company has a disappointing earnings growth number, due to its poor rate of reinvestment into its business. That being so, the latest industry analyst forecasts show that the analysts are expecting to see a huge improvement in the company's earnings growth rate. 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.