Is Humanwell Healthcare (Group) Co.,Ltd.'s (SHSE:600079) Stock's Recent Performance Being Led By Its Attractive Financial Prospects?

Humanwell Healthcare (Group)Ltd's (SHSE:600079) stock is up by a considerable 53% over the past three months. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. Specifically, we decided to study Humanwell Healthcare (Group)Ltd's ROE in this article.

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 Humanwell Healthcare (Group)Ltd

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 Humanwell Healthcare (Group)Ltd is:

13% = CN¥2.6b ÷ CN¥21b (Based on the trailing twelve months to September 2024).

The 'return' is the income the business earned over the last year. One way to conceptualize this is that for each CN¥1 of shareholders' capital it has, the company made CN¥0.13 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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

Humanwell Healthcare (Group)Ltd's Earnings Growth And 13% ROE

To start with, Humanwell Healthcare (Group)Ltd's ROE looks acceptable. Further, the company's ROE compares quite favorably to the industry average of 7.7%. Probably as a result of this, Humanwell Healthcare (Group)Ltd was able to see an impressive net income growth of 29% over the last five years. However, there could also be other causes behind this growth. Such as - high earnings retention or an efficient management in place.

As a next step, we compared Humanwell Healthcare (Group)Ltd's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 9.1%.

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. Doing so will help them establish if the stock's future looks promising or ominous. Is Humanwell Healthcare (Group)Ltd fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Humanwell Healthcare (Group)Ltd Efficiently Re-investing Its Profits?

Humanwell Healthcare (Group)Ltd's ' three-year median payout ratio is on the lower side at 12% implying that it is retaining a higher percentage (88%) of its profits. This suggests that the management is reinvesting most of the profits to grow the business as evidenced by the growth seen by the company.

Moreover, Humanwell Healthcare (Group)Ltd is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 14%. Accordingly, forecasts suggest that Humanwell Healthcare (Group)Ltd's future ROE will be 12% which is again, similar to the current ROE.

Conclusion

Overall, we are quite pleased with Humanwell Healthcare (Group)Ltd'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. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. 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.