Is Pop Mart International Group Limited's (HKG:9992) Stock's Recent Performance Being Led By Its Attractive Financial Prospects?

Pop Mart International Group (HKG:9992) has had a great run on the share market with its stock up by a significant 79% 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. Particularly, we will be paying attention to Pop Mart International Group's ROE today.

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. Put another way, it reveals the company's success at turning shareholder investments into profits.

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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 Pop Mart International Group is:

30% = CN¥3.3b ÷ CN¥11b (Based on the trailing twelve months to December 2024).

The 'return' is the yearly profit. So, this means that for every HK$1 of its shareholder's investments, the company generates a profit of HK$0.30.

Check out our latest analysis for Pop Mart International Group

What Has ROE Got To Do With Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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.

A Side By Side comparison of Pop Mart International Group's Earnings Growth And 30% ROE

Firstly, we acknowledge that Pop Mart International Group has a significantly high ROE. Additionally, the company's ROE is higher compared to the industry average of 8.2% which is quite remarkable. Under the circumstances, Pop Mart International Group's considerable five year net income growth of 33% was to be expected.

Next, on comparing with the industry net income growth, we found that Pop Mart International Group's growth is quite high when compared to the industry average growth of 3.5% in the same period, which is great to see.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Pop Mart International Group is trading on a high P/E or a low P/E, relative to its industry.

Is Pop Mart International Group Efficiently Re-investing Its Profits?

Pop Mart International Group's ' three-year median payout ratio is on the lower side at 25% implying that it is retaining a higher percentage (75%) of its profits. So it looks like Pop Mart International Group is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Besides, Pop Mart International Group has been paying dividends over a period of four years. This shows that the company is committed to sharing profits with its shareholders. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to rise to 33% over the next three years. However, Pop Mart International Group's future ROE is expected to rise to 41% 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.

Conclusion

In total, we are pretty happy with Pop Mart International Group's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. 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.