HD Hyundai Heavy Industries Co.,Ltd.'s (KRX:329180) Stock On An Uptrend: Could Fundamentals Be Driving The Momentum?

HD Hyundai Heavy IndustriesLtd's (KRX:329180) stock is up by a considerable 11% over the past three months. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. Specifically, we decided to study HD Hyundai Heavy IndustriesLtd's ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

See our latest analysis for HD Hyundai Heavy IndustriesLtd

How Do You 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 HD Hyundai Heavy IndustriesLtd is:

3.8% = ₩204b ÷ ₩5.4t (Based on the trailing twelve months to June 2024).

The 'return' is the income the business earned over the last year. That means that for every ₩1 worth of shareholders' equity, the company generated ₩0.04 in profit.

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. 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.

HD Hyundai Heavy IndustriesLtd's Earnings Growth And 3.8% ROE

It is quite clear that HD Hyundai Heavy IndustriesLtd's ROE is rather low. Even when compared to the industry average of 7.7%, the ROE figure is pretty disappointing. In spite of this, HD Hyundai Heavy IndustriesLtd was able to grow its net income considerably, at a rate of 57% in the last five years. We believe that there might be other aspects that are positively influencing the company's earnings 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 HD Hyundai Heavy IndustriesLtd'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 17% in the same 5-year period.

Earnings growth is a huge factor in stock valuation. 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. Is HD Hyundai Heavy IndustriesLtd fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is HD Hyundai Heavy IndustriesLtd Efficiently Re-investing Its Profits?

HD Hyundai Heavy IndustriesLtd doesn't pay any regular dividends to its shareholders, meaning that the company has been reinvesting all of its profits into the business. This is likely what's driving the high earnings growth number discussed above.

Summary

In total, it does look like HD Hyundai Heavy IndustriesLtd has some positive aspects to its business. Despite its low rate of return, the fact that the company reinvests a very high portion of its profits into its business, no doubt contributed to its high earnings growth. We also studied the latest analyst forecasts and found that the company's earnings growth is expected be similar to its current growth rate. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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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.