Is Avary Holding(Shenzhen)Co., Limited's (SZSE:002938) Stock's Recent Performance Being Led By Its Attractive Financial Prospects?

Most readers would already be aware that Avary Holding(Shenzhen)Co's (SZSE:002938) stock increased significantly by 43% over the past three months. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. In this article, we decided to focus on Avary Holding(Shenzhen)Co'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. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

Check out our latest analysis for Avary Holding(Shenzhen)Co

How To Calculate Return On Equity?

ROE 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 Avary Holding(Shenzhen)Co is:

11% = CN¥3.4b ÷ CN¥30b (Based on the trailing twelve months to March 2024).

The 'return' is the yearly profit. Another way to think of that is that for every CN¥1 worth of equity, the company was able to earn CN¥0.11 in profit.

Why Is ROE Important For 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 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.

Avary Holding(Shenzhen)Co's Earnings Growth And 11% ROE

To begin with, Avary Holding(Shenzhen)Co seems to have a respectable ROE. Especially when compared to the industry average of 6.3% the company's ROE looks pretty impressive. Probably as a result of this, Avary Holding(Shenzhen)Co was able to see a decent growth of 9.0% over the last five years.

Next, on comparing with the industry net income growth, we found that Avary Holding(Shenzhen)Co's growth is quite high when compared to the industry average growth of 6.4% in the same period, which is great to see.

Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. Is 002938 fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Avary Holding(Shenzhen)Co Making Efficient Use Of Its Profits?

With a three-year median payout ratio of 35% (implying that the company retains 65% of its profits), it seems that Avary Holding(Shenzhen)Co is reinvesting efficiently in a way that it sees respectable amount growth in its earnings and pays a dividend that's well covered.

Additionally, Avary Holding(Shenzhen)Co has paid dividends over a period of five years which means that the company is pretty serious about sharing its profits with shareholders.

Conclusion

Overall, we are quite pleased with Avary Holding(Shenzhen)Co's performance. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. 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.