Do Its Financials Have Any Role To Play In Driving Hangzhou SF Intra-city Industrial Co., Ltd.'s (HKG:9699) Stock Up Recently?

Most readers would already be aware that Hangzhou SF Intra-city Industrial's (HKG:9699) stock increased significantly by 89% over the past month. 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 Hangzhou SF Intra-city Industrial's ROE in this article.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

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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 Hangzhou SF Intra-city Industrial is:

4.5% = CN¥132m ÷ CN¥3.0b (Based on the trailing twelve months to December 2024).

The 'return' is the amount earned after tax over the last twelve months. Another way to think of that is that for every HK$1 worth of equity, the company was able to earn HK$0.04 in profit.

Check out our latest analysis for Hangzhou SF Intra-city Industrial

Why Is ROE Important For Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

A Side By Side comparison of Hangzhou SF Intra-city Industrial's Earnings Growth And 4.5% ROE

As you can see, Hangzhou SF Intra-city Industrial's ROE looks pretty weak. Not just that, even compared to the industry average of 7.3%, the company's ROE is entirely unremarkable. However, we we're pleasantly surprised to see that Hangzhou SF Intra-city Industrial grew its net income at a significant rate of 65% in the last five years. We reckon that there could be other factors at play here. 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.

As a next step, we compared Hangzhou SF Intra-city Industrial's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 8.9%.

Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is 9699 worth today? The intrinsic value infographic in our free research report helps visualize whether 9699 is currently mispriced by the market.

Is Hangzhou SF Intra-city Industrial Efficiently Re-investing Its Profits?

Hangzhou SF Intra-city Industrial 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

Overall, we feel that Hangzhou SF Intra-city Industrial certainly does have some positive factors to consider. 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. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. 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.