Desun Real Estate Investment Services Group Co., Ltd.'s (HKG:2270) Stock Is Going Strong: Have Financials A Role To Play?

Desun Real Estate Investment Services Group (HKG:2270) has had a great run on the share market with its stock up by a significant 52% over the last three months. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. In this article, we decided to focus on Desun Real Estate Investment Services Group's ROE.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

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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 Desun Real Estate Investment Services Group is:

11% = CN¥34m ÷ CN¥298m (Based on the trailing twelve months to June 2025).

The 'return' is the amount earned after tax over the last twelve months. That means that for every HK$1 worth of shareholders' equity, the company generated HK$0.11 in profit.

Check out our latest analysis for Desun Real Estate Investment Services Group

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. 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 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.

Desun Real Estate Investment Services Group's Earnings Growth And 11% ROE

At first glance, Desun Real Estate Investment Services Group seems to have a decent ROE. Especially when compared to the industry average of 3.7% the company's ROE looks pretty impressive. As you might expect, the 2.5% net income decline reported by Desun Real Estate Investment Services Group is a bit of a surprise. We reckon that there could be some other factors at play here that are preventing the company's growth. Such as, the company pays out a huge portion of its earnings as dividends, or is faced with competitive pressures.

As a next step, we compared Desun Real Estate Investment Services Group's performance with the industry and discovered the industry has shrunk at a rate of 4.5% in the same period meaning that the company has been shrinking its earnings at a rate lower than the industry. This does offer shareholders some relief

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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. Is Desun Real Estate Investment Services Group fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Desun Real Estate Investment Services Group Making Efficient Use Of Its Profits?

While the company did payout a portion of its dividend in the past, it currently doesn't pay a regular dividend. This implies that potentially all of its profits are being reinvested in the business.

Summary

In total, it does look like Desun Real Estate Investment Services Group has some positive aspects to its business. Although, we are disappointed to see a lack of growth in earnings even in spite of a high ROE and and a high reinvestment rate. We believe that there might be some outside factors that could be having a negative impact on the business. Up till now, we've only made a short study of the company's growth data. So it may be worth checking this free detailed graph of Desun Real Estate Investment Services Group's 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. 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.