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What Is Driving Zhejiang Expressway Co Ltd's (HKG:576) Margins In The Next Few Years?
Zhejiang Expressway Co Ltd's (HKG:576) stable vision for earnings in the future has analysts expecting subtle growth of 2.77% annualised over the few years to come, but it's necessary to take a moment and evaluate this appraisal. It is crucial for investors to do this, so they can judge the underlying components responsible for causing this growth, as the return realised by shareholders may look different in the future if underlying assumptions are not realised. To get some insight, this article will interpret Zhejiang Expressway's margin performance to help recognise the underlying make-up of revenue and expenses that is responsible for driving future earnings expectations and what it means for 576's returns relative to its competitors.
See our latest analysis for Zhejiang ExpresswayWhat does 576's profit margin tell us?
At a high level, a company’s ability to earn on their sales efforts can play an important role in determining shareholder value. 576's profit margin will help us understand the extent of this ability, as well as identify the forces behind earnings expectations.
Margin Calculation for 576
Profit Margin = Net Income ÷ Revenue
∴ Profit Margin = CN¥3.23b ÷ CN¥9.54b = 33.86%
Zhejiang Expressway's margin has expanded in the past five years, as a result of 11.71% in average net income growth exceeding 6.83% in average revenue growth, indicating that that the previous revenue growth has been accompanied by a growing portion translated in to earnings. The current 33.86% margin seems to continue this movement, indicating that earnings growth has likely been driven through improved cost management alongside the benefits of revenue growth.

Understanding what could be driving Zhejiang Expressway's future earnings
Margins are expected to move from expansion into contraction, with an expectation of 3.48% in annual revenue growth and annual net income growth forecasted at 2.77%. This suggests future earnings growth is driven further by an increase in top line revenue, which is expected to squeeze the incremental amount of net income that is retained. However, those watching the stock must know a contracting margin has different impacts on profit and return depending on the underlying situation, which reinforces the importance of deeper research.

Next Steps:
For 576, there are three key aspects you should look at:
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Valuation: What is 576 worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether 576 is currently mispriced by the market.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of 576? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
Valuation is complex, but we're here to simplify it.
Discover if Zhejiang Expressway might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
Access Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.
About SEHK:576
Zhejiang Expressway
An investment holding company, invests, develops, maintains, and operates roads in the People’s Republic of China.
Flawless balance sheet, undervalued and pays a dividend.
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