Is Tianli International Holdings Limited's (HKG:1773) Stock's Recent Performance Being Led By Its Attractive Financial Prospects?

Most readers would already be aware that Tianli International Holdings' (HKG:1773) stock increased significantly by 6.4% over the past week. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Particularly, we will be paying attention to Tianli International 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. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

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How Do You 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 Tianli International Holdings is:

22% = CN¥556m ÷ CN¥2.5b (Based on the trailing twelve months to August 2024).

The 'return' is the profit over the last twelve months. So, this means that for every HK$1 of its shareholder's investments, the company generates a profit of HK$0.22.

View our latest analysis for Tianli International Holdings

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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. 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.

Tianli International Holdings' Earnings Growth And 22% ROE

To begin with, Tianli International Holdings has a pretty high ROE which is interesting. Additionally, the company's ROE is higher compared to the industry average of 8.9% which is quite remarkable. As a result, Tianli International Holdings' exceptional 22% net income growth seen over the past five years, doesn't come as a surprise.

We then compared Tianli International Holdings' net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 2.2% in the same 5-year period.

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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. 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 Tianli International Holdings is trading on a high P/E or a low P/E, relative to its industry.

Is Tianli International Holdings Using Its Retained Earnings Effectively?

The three-year median payout ratio for Tianli International Holdings is 30%, which is moderately low. The company is retaining the remaining 70%. So it seems that Tianli International 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.

Additionally, Tianli International Holdings has paid dividends over a period of six years which means that the company is pretty serious about sharing its profits with shareholders.

Conclusion

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