Edvance International Holdings Limited's (HKG:1410) Recent Stock Performance Looks Decent- Can Strong Fundamentals Be the Reason?

Most readers would already know that Edvance International Holdings' (HKG:1410) stock increased by 3.0% over the past three months. 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 Edvance International Holdings' ROE today.

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.

Check out our latest analysis for Edvance International Holdings

How Is ROE Calculated?

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 Edvance International Holdings is:

23% = HK$28m ÷ HK$120m (Based on the trailing twelve months to September 2020).

The 'return' is the income the business earned over the last year. One way to conceptualize this is that for each HK$1 of shareholders' capital it has, the company made HK$0.23 in profit.

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 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.

Edvance International Holdings' Earnings Growth And 23% ROE

First thing first, we like that Edvance International Holdings has an impressive ROE. Additionally, the company's ROE is higher compared to the industry average of 7.8% which is quite remarkable. Under the circumstances, Edvance International Holdings' considerable five year net income growth of 37% was to be expected.

We then compared Edvance 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 3.9% in the same period.

Earnings growth is a huge factor in stock valuation. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. Is Edvance International Holdings fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Edvance International Holdings Using Its Retained Earnings Effectively?

Edvance International Holdings' significant three-year median payout ratio of 54% (where it is retaining only 46% of its income) suggests that the company has been able to achieve a high growth in earnings despite returning most of its income to shareholders.

While Edvance International Holdings 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.

Summary

In total, we are pretty happy with Edvance International Holdings' performance. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. So far, we've only made a quick discussion around the company's earnings growth. You can do your own research on Edvance International Holdings and see how it has performed in the past by looking at this FREE detailed graph of past earnings, revenue and cash flows.

If you’re looking to trade Edvance International Holdings, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.