Stock Analysis

MBV International Limited's (HKG:1957) Financials Are Too Obscure To Link With Current Share Price Momentum: What's In Store For the Stock?

SEHK:1957
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MBV International's (HKG:1957) stock is up by 8.1% over the past three months. However, the company's financials look a bit inconsistent and market outcomes are ultimately driven by long-term fundamentals, meaning that the stock could head in either direction. Particularly, we will be paying attention to MBV International's ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

Check out our latest analysis for MBV International

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 MBV International is:

7.4% = RM6.9m ÷ RM93m (Based on the trailing twelve months to June 2020).

The 'return' is the amount earned after tax over the last twelve months. That means that for every HK$1 worth of shareholders' equity, the company generated HK$0.07 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. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. 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.

MBV International's Earnings Growth And 7.4% ROE

At first glance, MBV International's ROE doesn't look very promising. Yet, a closer study shows that the company's ROE is similar to the industry average of 6.9%. Having said that, MBV International's five year net income decline rate was 16%. Remember, the company's ROE is a bit low to begin with. So that's what might be causing earnings growth to shrink.

As a next step, we compared MBV International's performance with the industry and found thatMBV International's performance is depressing even when compared with the industry, which has shrunk its earnings at a rate of 2.3% in the same period, which is a slower than the company.

past-earnings-growth
SEHK:1957 Past Earnings Growth February 11th 2021

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 MBV International fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is MBV International Making Efficient Use Of Its Profits?

Summary

Overall, we have mixed feelings about MBV International. While the company does have a high rate of reinvestment, the low ROE means that all that reinvestment is not reaping any benefit to its investors, and moreover, its having a negative impact on the earnings growth. Wrapping up, we would proceed with caution with this company and one way of doing that would be to look at the risk profile of the business. You can see the 4 risks we have identified for MBV International by visiting our risks dashboard for free on our platform here.

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This article by Simply Wall St is general in nature. 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.
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