Do Its Financials Have Any Role To Play In Driving Hi-Trend Technology (Shanghai) Co., Ltd.'s (SHSE:688391) Stock Up Recently?

Hi-Trend Technology (Shanghai) (SHSE:688391) has had a great run on the share market with its stock up by a significant 26% over the last month. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. In this article, we decided to focus on Hi-Trend Technology (Shanghai)'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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

See our latest analysis for Hi-Trend Technology (Shanghai)

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 Hi-Trend Technology (Shanghai) is:

5.7% = CN¥107m ÷ CN¥1.9b (Based on the trailing twelve months to June 2024).

The 'return' is the amount earned after tax over the last twelve months. One way to conceptualize this is that for each CN¥1 of shareholders' capital it has, the company made CN¥0.06 in profit.

What Is The Relationship Between ROE And 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. 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.

A Side By Side comparison of Hi-Trend Technology (Shanghai)'s Earnings Growth And 5.7% ROE

At first glance, Hi-Trend Technology (Shanghai)'s ROE doesn't look very promising. Yet, a closer study shows that the company's ROE is similar to the industry average of 5.9%. Even so, Hi-Trend Technology (Shanghai) has shown a fairly decent growth in its net income which grew at a rate of 17%. Given the slightly low ROE, it is likely that there could be some other aspects that are driving this growth. Such as - high earnings retention or an efficient management in place.

Next, on comparing Hi-Trend Technology (Shanghai)'s net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 17% over the last few years.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. Is Hi-Trend Technology (Shanghai) fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Hi-Trend Technology (Shanghai) Efficiently Re-investing Its Profits?

The high three-year median payout ratio of 51% (or a retention ratio of 49%) for Hi-Trend Technology (Shanghai) suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

While Hi-Trend Technology (Shanghai) has seen growth in its earnings, it only recently started to pay a dividend. It is most likely that the company decided to impress new and existing shareholders with a dividend.

Summary

In total, it does look like Hi-Trend Technology (Shanghai) has some positive aspects to its business. That is, quite an impressive growth in earnings. However, the low profit retention means that the company's earnings growth could have been higher, had it been reinvesting a higher portion of its profits. Up till now, we've only made a short study of the company's growth data. To gain further insights into Hi-Trend Technology (Shanghai)'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.