Maoyan Entertainment (HKG:1896) Stock Is Going Strong But Fundamentals Look Uncertain: What Lies Ahead ?

Maoyan Entertainment's (HKG:1896) stock is up by a considerable 8.5% over the past week. However, we wonder if the company's inconsistent financials would have any adverse impact on the current share price momentum. Particularly, we will be paying attention to Maoyan Entertainment's ROE today.

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 Is ROE Calculated?

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 Maoyan Entertainment is:

0.9% = CN¥76m ÷ CN¥8.9b (Based on the trailing twelve months to June 2025).

The 'return' is the yearly profit. So, this means that for every HK$1 of its shareholder's investments, the company generates a profit of HK$0.01.

See our latest analysis for Maoyan Entertainment

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.

Maoyan Entertainment's Earnings Growth And 0.9% ROE

It is hard to argue that Maoyan Entertainment's ROE is much good in and of itself. Even when compared to the industry average of 8.5%, the ROE figure is pretty disappointing. In spite of this, Maoyan Entertainment was able to grow its net income considerably, at a rate of 43% in the last five years. Therefore, there could be other reasons behind this growth. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

We then compared Maoyan Entertainment'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 20% in the same 5-year period.

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. This then helps them determine if the stock is placed for a bright or bleak future. Has the market priced in the future outlook for 1896? You can find out in our latest intrinsic value infographic research report.

Is Maoyan Entertainment Using Its Retained Earnings Effectively?

Maoyan Entertainment has very a high three-year median payout ratio of 268% suggesting that the company's shareholders are getting paid from more than just the company's earnings. However, this hasn't hampered its ability to grow as we saw earlier. Having said that, the high payout ratio is definitely risky and something to keep an eye on. To know the 2 risks we have identified for Maoyan Entertainment visit our risks dashboard for free.

While Maoyan Entertainment has been growing its earnings, it only recently started to pay dividends which likely means that the company decided to impress new and existing shareholders with a dividend. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to drop to 15% over the next three years. The fact that the company's ROE is expected to rise to 7.2% over the same period is explained by the drop in the payout ratio.

Summary

Overall, we have mixed feelings about Maoyan Entertainment. While the company has posted impressive earnings growth, its poor ROE and low earnings retention makes us doubtful if that growth could continue, if by any chance the business is faced with any sort of risk. 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.