With its stock down 12% over the past three months, it is easy to disregard COSCO SHIPPING Holdings (HKG:1919). However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. Particularly, we will be paying attention to COSCO SHIPPING Holdings’ 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. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
View our latest analysis for COSCO SHIPPING Holdings
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 COSCO SHIPPING Holdings is:
58% = CN¥104b ÷ CN¥179b (Based on the trailing twelve months to December 2021).
The ‘return’ refers to a company’s earnings over the last year. That means that for every HK$1 worth of shareholders’ equity, the company generated HK$0.58 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 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 COSCO SHIPPING Holdings’ Earnings Growth And 58% ROE
First thing first, we like that COSCO SHIPPING Holdings has an impressive ROE. Second, a comparison with the average ROE reported by the industry of 27% also doesn’t go unnoticed by us. Under the circumstances, COSCO SHIPPING Holdings’ considerable five year net income growth of 85% was to be expected.
We then compared COSCO SHIPPING Holdings’ net income growth with the industry and we’re pleased to see that the company’s growth figure is higher when compared with the industry which has a growth rate of 44% in the same period.
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. Is COSCO SHIPPING Holdings fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is COSCO SHIPPING Holdings Efficiently Re-investing Its Profits?
COSCO SHIPPING Holdings doesn’t pay any dividend currently which essentially means that it has been reinvesting all of its profits into the business. This definitely contributes to the high earnings growth number that we discussed above.
Conclusion
In total, we are pretty happy with COSCO SHIPPING Holdings’ 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. Having said that, on studying current analyst estimates, we were concerned to see that while the company has grown its earnings in the past, analysts expect its earnings to shrink in the future. 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.
