Are Robust Financials Driving The Recent Rally In Plover Bay Technologies Limited's (HKG:1523) Stock?

Plover Bay Technologies (HKG:1523) has had a great run on the share market with its stock up by a significant 13% over the last three months. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. Specifically, we decided to study Plover Bay Technologies' ROE in this article.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. 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?

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 Plover Bay Technologies is:

68% = US$38m ÷ US$56m (Based on the trailing twelve months to December 2024).

The 'return' refers to a company's earnings over the last year. So, this means that for every HK$1 of its shareholder's investments, the company generates a profit of HK$0.68.

Check out our latest analysis for Plover Bay Technologies

What Has ROE Got To Do With 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.

A Side By Side comparison of Plover Bay Technologies' Earnings Growth And 68% ROE

First thing first, we like that Plover Bay Technologies has an impressive ROE. Second, a comparison with the average ROE reported by the industry of 4.2% also doesn't go unnoticed by us. As a result, Plover Bay Technologies' exceptional 23% net income growth seen over the past five years, doesn't come as a surprise.

We then compared Plover Bay Technologies' 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 8.8% in the same 5-year period.

Earnings growth is an important metric to consider when valuing a stock. 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 1523 fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Plover Bay Technologies Using Its Retained Earnings Effectively?

The high three-year median payout ratio of 90% (implying that it keeps only 10% of profits) for Plover Bay Technologies suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.

Additionally, Plover Bay Technologies has paid dividends over a period of nine years which means that the company is pretty serious about sharing its profits with shareholders. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 85% of its profits over the next three years. Still, forecasts suggest that Plover Bay Technologies' future ROE will rise to 85% even though the the company's payout ratio is not expected to change by much.

Summary

On the whole, we feel that Plover Bay Technologies' performance has been quite good. In particular, its high ROE is quite noteworthy and also the probable explanation behind its considerable earnings growth. Yet, the company is retaining a small portion of its profits. Which means that the company has been able to grow its earnings in spite of it, so that's not too bad. 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 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.