Zylox-Tonbridge Medical Technology Co., Ltd.'s (HKG:2190) Stock Has Shown Weakness Lately But Financial Prospects Look Decent: Is The Market Wrong?

Zylox-Tonbridge Medical Technology (HKG:2190) has had a rough week with its share price down 6.5%. However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. Specifically, we decided to study Zylox-Tonbridge Medical Technology's ROE in this article.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. 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?

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 Zylox-Tonbridge Medical Technology is:

4.8% = CN¥153m ÷ CN¥3.2b (Based on the trailing twelve months to June 2025).

The 'return' is the yearly profit. One way to conceptualize this is that for each HK$1 of shareholders' capital it has, the company made HK$0.05 in profit.

Check out our latest analysis for Zylox-Tonbridge Medical Technology

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.

Zylox-Tonbridge Medical Technology's Earnings Growth And 4.8% ROE

On the face of it, Zylox-Tonbridge Medical Technology's ROE is not much to talk about. We then compared the company's ROE to the broader industry and were disappointed to see that the ROE is lower than the industry average of 9.2%. However, we we're pleasantly surprised to see that Zylox-Tonbridge Medical Technology grew its net income at a significant rate of 56% in the last five years. Therefore, there could be other reasons behind this growth. Such as - high earnings retention or an efficient management in place.

We then compared Zylox-Tonbridge Medical Technology's 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 15% in the same 5-year period.

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. What is 2190 worth today? The intrinsic value infographic in our free research report helps visualize whether 2190 is currently mispriced by the market.

Is Zylox-Tonbridge Medical Technology Using Its Retained Earnings Effectively?

The three-year median payout ratio for Zylox-Tonbridge Medical Technology is 26%, which is moderately low. The company is retaining the remaining 74%. So it seems that Zylox-Tonbridge Medical Technology is reinvesting efficiently in a way that it sees impressive growth in its earnings (discussed above) and pays a dividend that's well covered.

Along with seeing a growth in earnings, Zylox-Tonbridge Medical Technology only recently started paying dividends. Its quite possible that the company was looking to impress its shareholders. Our latest analyst data shows that the future payout ratio of the company is expected to drop to 13% over the next three years. The fact that the company's ROE is expected to rise to 9.5% over the same period is explained by the drop in the payout ratio.

Conclusion

On the whole, we do feel that Zylox-Tonbridge Medical Technology has some positive attributes. Despite its low rate of return, the fact that the company reinvests a very high portion of its profits into its business, no doubt contributed to its high earnings growth. 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 company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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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.