China Resources Mixc Lifestyle Services’ (HKG:1209) stock is up by a considerable 13% over the past month. 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. In this article, we decided to focus on China Resources Mixc Lifestyle Services’ ROE.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Put another way, it reveals the company’s success at turning shareholder investments into profits.
See our latest analysis for China Resources Mixc Lifestyle Services
How Is ROE Calculated?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
So, based on the above formula, the ROE for China Resources Mixc Lifestyle Services is:
14% = CN¥1.9b ÷ CN¥14b (Based on the trailing twelve months to June 2022).
The ‘return’ is the yearly profit. Another way to think of that is that for every HK$1 worth of equity, the company was able to earn HK$0.14 in profit.
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 all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don’t have the same features.
China Resources Mixc Lifestyle Services’ Earnings Growth And 14% ROE
At first glance, China Resources Mixc Lifestyle Services seems to have a decent ROE. Further, the company’s ROE compares quite favorably to the industry average of 6.8%. This certainly adds some context to China Resources Mixc Lifestyle Services’ exceptional 40% net income growth seen over the past five years. We believe that there might also be other aspects that are positively influencing the company’s earnings growth. For instance, the company has a low payout ratio or is being managed efficiently.
Next, on comparing with the industry net income growth, we found that China Resources Mixc Lifestyle Services’ growth is quite high when compared to the industry average growth of 6.3% in the same period, which is great to see.
Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is 1209 worth today? The intrinsic value infographic in our free research report helps visualize whether 1209 is currently mispriced by the market.
Is China Resources Mixc Lifestyle Services Efficiently Re-investing Its Profits?
China Resources Mixc Lifestyle Services has a three-year median payout ratio of 27% (where it is retaining 73% of its income) which is not too low or not too high. So it seems that China Resources Mixc Lifestyle Services is reinvesting efficiently in a way that it sees impressive growth in its earnings (discussed above) and pays a dividend that’s well covered.
While China Resources Mixc Lifestyle Services 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. Our latest analyst data shows that the future payout ratio of the company is expected to rise to 36% over the next three years. However, China Resources Mixc Lifestyle Services’ future ROE is expected to rise to 18% despite the expected increase in the company’s payout ratio. We infer that there could be other factors that could be driving the anticipated growth in the company’s ROE.
Summary
On the whole, we feel that China Resources Mixc Lifestyle Services’ performance has been quite good. 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. Having said that, the company’s earnings growth is expected to slow down, as forecasted in the current analyst estimates. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.
Valuation is complex, but we’re helping make it simple.
Find out whether China Resources Mixc Lifestyle Services is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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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.
