Stock Analysis

Are Strong Financial Prospects The Force That Is Driving The Momentum In Yadea Group Holdings Ltd.'s HKG:1585) Stock?

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Yadea Group Holdings' (HKG:1585) stock is up by a considerable 39% 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. Particularly, we will be paying attention to Yadea Group Holdings' ROE today.

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. Put another way, it reveals the company's success at turning shareholder investments into profits.

Check out our latest analysis for Yadea Group Holdings

How Is ROE Calculated?

Return on equity 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 Yadea Group Holdings is:

31% = CN¥1.7b ÷ CN¥5.4b (Based on the trailing twelve months to June 2022).

The 'return' is the income the business earned over the last year. Another way to think of that is that for every HK$1 worth of equity, the company was able to earn HK$0.31 in profit.

What Is The Relationship Between ROE And Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.

Yadea Group Holdings' Earnings Growth And 31% ROE

Firstly, we acknowledge that Yadea Group Holdings has a significantly high ROE. Second, a comparison with the average ROE reported by the industry of 9.5% also doesn't go unnoticed by us. So, the substantial 33% net income growth seen by Yadea Group Holdings over the past five years isn't overly surprising.

When you consider the fact that the industry earnings have shrunk at a rate of 0.8% in the same period, the company's net income growth is pretty remarkable.

SEHK:1585 Past Earnings Growth March 17th 2023

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. What is 1585 worth today? The intrinsic value infographic in our free research report helps visualize whether 1585 is currently mispriced by the market.

Is Yadea Group Holdings Using Its Retained Earnings Effectively?

Yadea Group Holdings has a three-year median payout ratio of 40% (where it is retaining 60% of its income) which is not too low or not too high. So it seems that Yadea Group Holdings is reinvesting efficiently in a way that it sees impressive growth in its earnings (discussed above) and pays a dividend that's well covered.

Moreover, Yadea Group Holdings is determined to keep sharing its profits with shareholders which we infer from its long history of six years of paying a dividend. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 41%. As a result, Yadea Group Holdings' ROE is not expected to change by much either, which we inferred from the analyst estimate of 35% for future ROE.


On the whole, we feel that Yadea Group Holdings' performance has been quite good. 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. The latest industry analyst forecasts show that the company is expected to maintain its current growth rate. 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.

Valuation is complex, but we're helping make it simple.

Find out whether Yadea Group Holdings is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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