Are Wasu Media Holding Co.,Ltd's (SZSE:000156) Mixed Financials The Reason For Its Gloomy Performance on The Stock Market?

Wasu Media HoldingLtd (SZSE:000156) has had a rough three months with its share price down 6.2%. It is possible that the markets have ignored the company's differing financials and decided to lean-in to the negative sentiment. Long-term fundamentals are usually what drive market outcomes, so it's worth paying close attention. In this article, we decided to focus on Wasu Media HoldingLtd's ROE.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

See our latest analysis for Wasu Media HoldingLtd

How To Calculate Return On Equity?

The formula for ROE is:

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

So, based on the above formula, the ROE for Wasu Media HoldingLtd is:

4.3% = CN¥659m ÷ CN¥15b (Based on the trailing twelve months to March 2024).

The 'return' refers to a company's earnings over the last year. So, this means that for every CN¥1 of its shareholder's investments, the company generates a profit of CN¥0.04.

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. 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.

A Side By Side comparison of Wasu Media HoldingLtd's Earnings Growth And 4.3% ROE

It is quite clear that Wasu Media HoldingLtd's ROE is rather low. A comparison with the industry shows that the company's ROE is pretty similar to the average industry ROE of 4.9%. Wasu Media HoldingLtd's flat earnings over the past five years can possibly be explained by the low ROE amongst other factors.

As a next step, we compared Wasu Media HoldingLtd's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 1.8% in the same period.

Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. If you're wondering about Wasu Media HoldingLtd's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Wasu Media HoldingLtd Making Efficient Use Of Its Profits?

Despite having a moderate three-year median payout ratio of 44% (meaning the company retains56% of profits) in the last three-year period, Wasu Media HoldingLtd's earnings growth was more or les flat. So there could be some other explanation in that regard. For instance, the company's business may be deteriorating.

Additionally, Wasu Media HoldingLtd has paid dividends over a period of eight years, which means that the company's management is determined to pay dividends even if it means little to no earnings growth.

Conclusion

Overall, we have mixed feelings about Wasu Media HoldingLtd. While the company does have a high rate of profit retention, its low rate of return is probably hampering its earnings growth. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. To gain further insights into Wasu Media HoldingLtd's past profit growth, check out this visualization of past earnings, revenue and cash flows.

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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.