Could The Market Be Wrong About Wanguo Gold Group Limited (HKG:3939) Given Its Attractive Financial Prospects?

With its stock down 28% over the past month, it is easy to disregard Wanguo Gold Group (HKG:3939). However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. Specifically, we decided to study Wanguo Gold Group's 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. Put another way, it reveals the company's success at turning shareholder investments into profits.

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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 Wanguo Gold Group is:

26% = CN¥1.0b ÷ CN¥3.9b (Based on the trailing twelve months to June 2025).

The 'return' is the yearly profit. Another way to think of that is that for every HK$1 worth of equity, the company was able to earn HK$0.26 in profit.

See our latest analysis for Wanguo Gold Group

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 all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

Wanguo Gold Group's Earnings Growth And 26% ROE

To begin with, Wanguo Gold Group has a pretty high ROE which is interesting. Second, a comparison with the average ROE reported by the industry of 12% also doesn't go unnoticed by us. Under the circumstances, Wanguo Gold Group's considerable five year net income growth of 43% was to be expected.

Next, on comparing with the industry net income growth, we found that Wanguo Gold Group's growth is quite high when compared to the industry average growth of 15% in the same period, which is great to see.

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. Is 3939 fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Wanguo Gold Group Using Its Retained Earnings Effectively?

The three-year median payout ratio for Wanguo Gold Group is 42%, which is moderately low. The company is retaining the remaining 58%. By the looks of it, the dividend is well covered and Wanguo Gold Group is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Moreover, Wanguo Gold Group is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 43%. Still, forecasts suggest that Wanguo Gold Group's future ROE will rise to 35% even though the the company's payout ratio is not expected to change by much.

Conclusion

In total, we are pretty happy with Wanguo Gold Group's 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 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.