Has Full Truck Alliance Co. Ltd.'s (NYSE:YMM) Impressive Stock Performance Got Anything to Do With Its Fundamentals?

Full Truck Alliance's (NYSE:YMM) stock is up by a considerable 16% over the past three months. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. Particularly, we will be paying attention to Full Truck Alliance's ROE today.

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. 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?

The formula for ROE is:

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

So, based on the above formula, the ROE for Full Truck Alliance is:

11% = CN¥4.2b ÷ CN¥40b (Based on the trailing twelve months to June 2025).

The 'return' refers to a company's earnings over the last year. That means that for every $1 worth of shareholders' equity, the company generated $0.11 in profit.

Check out our latest analysis for Full Truck Alliance

What Is The Relationship Between ROE And 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.

A Side By Side comparison of Full Truck Alliance's Earnings Growth And 11% ROE

At first glance, Full Truck Alliance's ROE doesn't look very promising. However, given that the company's ROE is similar to the average industry ROE of 12%, we may spare it some thought. Moreover, we are quite pleased to see that Full Truck Alliance's net income grew significantly at a rate of 70% over the last five years. Taking into consideration that the ROE is not particularly high, we reckon that there could also be other factors at play which could be influencing the company's 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.

Next, on comparing with the industry net income growth, we found that Full Truck Alliance's growth is quite high when compared to the industry average growth of 5.8% in the same period, which is great to see.

Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Full Truck Alliance's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Full Truck Alliance Using Its Retained Earnings Effectively?

The three-year median payout ratio for Full Truck Alliance is 34%, which is moderately low. The company is retaining the remaining 66%. This suggests that its dividend is well covered, and given the high growth we discussed above, it looks like Full Truck Alliance is reinvesting its earnings efficiently.

While Full Truck Alliance 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. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 32% of its profits over the next three years. Regardless, the future ROE for Full Truck Alliance is predicted to rise to 15% despite there being not much change expected in its payout ratio.

Conclusion

In total, it does look like Full Truck Alliance has some positive aspects to its business. Even in spite of the low rate of return, the company has posted impressive earnings growth as a result of reinvesting heavily into its business. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. 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.