Victory Giant Technology (HuiZhou)Co.,Ltd.'s (SZSE:300476) Stock Is Going Strong: Is the Market Following Fundamentals?

Victory Giant Technology (HuiZhou)Co.Ltd's (SZSE:300476) stock is up by a considerable 32% 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 Victory Giant Technology (HuiZhou)Co.Ltd's ROE.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

Check out our latest analysis for Victory Giant Technology (HuiZhou)Co.Ltd

How Do You 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 Victory Giant Technology (HuiZhou)Co.Ltd is:

10% = CN¥850m ÷ CN¥8.3b (Based on the trailing twelve months to September 2024).

The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each CN¥1 of shareholders' capital it has, the company made CN¥0.10 in profit.

Why Is ROE Important For Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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.

Victory Giant Technology (HuiZhou)Co.Ltd's Earnings Growth And 10% ROE

On the face of it, Victory Giant Technology (HuiZhou)Co.Ltd's ROE is not much to talk about. However, the fact that the its ROE is quite higher to the industry average of 6.0% doesn't go unnoticed by us. This probably goes some way in explaining Victory Giant Technology (HuiZhou)Co.Ltd's moderate 11% growth over the past five years amongst other factors. Bear in mind, the company does have a moderately low ROE. It is just that the industry ROE is lower. Hence there might be some other aspects that are causing earnings to grow. E.g the company has a low payout ratio or could belong to a high growth industry.

Next, on comparing with the industry net income growth, we found that Victory Giant Technology (HuiZhou)Co.Ltd's growth is quite high when compared to the industry average growth of 4.0% in the same period, which is great to see.

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. This then helps them determine if the stock is placed for a bright or bleak future. Is Victory Giant Technology (HuiZhou)Co.Ltd fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Victory Giant Technology (HuiZhou)Co.Ltd Efficiently Re-investing Its Profits?

Victory Giant Technology (HuiZhou)Co.Ltd's three-year median payout ratio to shareholders is 22% (implying that it retains 78% of its income), which is on the lower side, so it seems like the management is reinvesting profits heavily to grow its business.

Moreover, Victory Giant Technology (HuiZhou)Co.Ltd is determined to keep sharing its profits with shareholders which we infer from its long history of nine years of paying a dividend.

Summary

In total, we are pretty happy with Victory Giant Technology (HuiZhou)Co.Ltd's performance. Specifically, we like that it has been reinvesting a high portion of its profits at a moderate rate of return, resulting in earnings expansion. With that said, the latest industry analyst forecasts reveal that the company's earnings are expected to accelerate. 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.