Is HD HYUNDAI Marine Solution CO.,LTD.'s (KRX:443060) Latest Stock Performance A Reflection Of Its Financial Health?

HD HYUNDAI Marine SolutionLTD (KRX:443060) has had a great run on the share market with its stock up by a significant 22% over the last three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. In this article, we decided to focus on HD HYUNDAI Marine SolutionLTD's ROE.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

See our latest analysis for HD HYUNDAI Marine SolutionLTD

How Do You Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for HD HYUNDAI Marine SolutionLTD is:

29% = ₩192b ÷ ₩668b (Based on the trailing twelve months to September 2024).

The 'return' is the profit over the last twelve months. Another way to think of that is that for every ₩1 worth of equity, the company was able to earn ₩0.29 in profit.

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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 Marine SolutionLTD's Earnings Growth And 29% ROE

First thing first, we like that HD HYUNDAI Marine SolutionLTD has an impressive ROE. Second, a comparison with the average ROE reported by the industry of 7.1% also doesn't go unnoticed by us. Probably as a result of this, HD HYUNDAI Marine SolutionLTD was able to see a decent net income growth of 15% over the last five years.

Next, on comparing HD HYUNDAI Marine SolutionLTD's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 18% over the last few years.

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 HD HYUNDAI Marine SolutionLTD fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is HD HYUNDAI Marine SolutionLTD Efficiently Re-investing Its Profits?

HD HYUNDAI Marine SolutionLTD's three-year median payout ratio to shareholders is 11% (implying that it retains 89% of its income), which is on the lower side, so it seems like the management is reinvesting profits heavily to grow its business.

While HD HYUNDAI Marine SolutionLTD has seen growth in its earnings, it only recently started to pay a dividend. It is most likely that the company decided to impress new and existing shareholders with a dividend. Our latest analyst data shows that the future payout ratio of the company is expected to rise to 79% over the next three years. Regardless, the future ROE for HD HYUNDAI Marine SolutionLTD is speculated to rise to 37% despite the anticipated increase in the payout ratio. There could probably be other factors that could be driving the future growth in the ROE.

Conclusion

Overall, we are quite pleased with HD HYUNDAI Marine SolutionLTD's performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page 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.