Is Best Mart 360 Holdings Limited's (HKG:2360) Recent Stock Performance Influenced By Its Financials In Any Way?

Best Mart 360 Holdings' (HKG:2360) stock up by 6.9% over the past three months. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to investigate if the company's decent financials had a hand to play in the recent price move. Specifically, we decided to study Best Mart 360 Holdings' 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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.

See our latest analysis for Best Mart 360 Holdings

How Do You 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 Best Mart 360 Holdings is:

10% = HK$34m ÷ HK$342m (Based on the trailing twelve months to September 2020).

The 'return' is the yearly profit. That means that for every HK$1 worth of shareholders' equity, the company generated HK$0.10 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. 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.

A Side By Side comparison of Best Mart 360 Holdings' Earnings Growth And 10% ROE

At first glance, Best Mart 360 Holdings seems to have a decent ROE. Further, the company's ROE compares quite favorably to the industry average of 7.4%. This probably laid the ground for Best Mart 360 Holdings' moderate 6.8% net income growth seen over the past five years.

Next, on comparing with the industry net income growth, we found that Best Mart 360 Holdings' growth is quite high when compared to the industry average growth of 4.9% in the same period, which is great to see.

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Best Mart 360 Holdings is trading on a high P/E or a low P/E, relative to its industry.

Is Best Mart 360 Holdings Efficiently Re-investing Its Profits?

The high three-year median payout ratio of 99% (or a retention ratio of 1.3%) for Best Mart 360 Holdings suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

While Best Mart 360 Holdings has seen growth in its earnings, it only recently started to pay a dividend. It is most likely that the company decided to impress new and existing shareholders with a dividend.

Conclusion

On the whole, we do feel that Best Mart 360 Holdings has some positive attributes. Specifically, its high ROE which likely led to the growth in earnings. Bear in mind, the company reinvests little to none of its profits, which means that investors aren't necessarily reaping the full benefits of the high rate of return. So far, we've only made a quick discussion around the company's earnings growth. So it may be worth checking this free detailed graph of Best Mart 360 Holdings' past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.

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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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