Could The Market Be Wrong About ANTA Sports Products Limited (HKG:2020) Given Its Attractive Financial Prospects?

ANTA Sports Products (HKG:2020) has had a rough week with its share price down 3.8%. However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. Specifically, we decided to study ANTA Sports Products' ROE in this article.

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.

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How To Calculate Return On Equity?

The formula for return on equity is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for ANTA Sports Products is:

24% = CN¥17b ÷ CN¥70b (Based on the trailing twelve months to June 2025).

The 'return' refers to a company's earnings over the last year. So, this means that for every HK$1 of its shareholder's investments, the company generates a profit of HK$0.24.

Check out our latest analysis for ANTA Sports Products

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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.

ANTA Sports Products' Earnings Growth And 24% ROE

Firstly, we acknowledge that ANTA Sports Products has a significantly high ROE. Secondly, even when compared to the industry average of 9.9% the company's ROE is quite impressive. Under the circumstances, ANTA Sports Products' considerable five year net income growth of 23% was to be expected.

As a next step, we compared ANTA Sports Products' net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 12%.

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 2020 fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is ANTA Sports Products Making Efficient Use Of Its Profits?

The three-year median payout ratio for ANTA Sports Products is 43%, which is moderately low. The company is retaining the remaining 57%. This suggests that its dividend is well covered, and given the high growth we discussed above, it looks like ANTA Sports Products is reinvesting its earnings efficiently.

Besides, ANTA Sports Products has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Looking at the current analyst consensus data, we can see that the company's future payout ratio is expected to rise to 58% over the next three years. However, the company's ROE is not expected to change by much despite the higher expected payout ratio.

Conclusion

In total, we are pretty happy with ANTA Sports Products' performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. 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.