MBV International (HKG:1957) has had a strong run in the stock market with a significant 39% increase in its shares over the past three months. But the company’s key financial indicators seem to differ across the board, leading us to wonder whether the company’s current share price momentum can be sustained or not. In particular, today we will pay particular attention to the ROE of MBV International.
Return on Equity or ROE is a test of how effectively a company increases its value and manages investors’ money. In simple terms, it is used to assess the profitability of a company in relation to its equity.
Discover our latest analysis for MBV International
How do you calculate return on equity?
The return on equity formula is:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for MBV International is:
6.2% = RM9.6 million ÷ RM156 million (based on trailing twelve months to December 2021).
The “yield” is the profit of the last twelve months. One way to conceptualize this is that for every HK$1 of share capital it has, the company has made a profit of HK$0.06.
What does ROE have to do with earnings growth?
So far, we have learned that ROE measures how efficiently a company generates its profits. Depending on how much of its profits the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. Assuming all else is equal, companies that have both a higher return on equity and better earnings retention are generally the ones with a higher growth rate compared to companies that don’t. same characteristics.
MBV International earnings growth and ROE of 6.2%
At first glance, MBV International’s ROE is not much to tell. Yet further investigation shows that the company’s ROE is similar to the industry average of 6.2%. But MBV International has seen its net income decline by 32% over five years over the past five years. Keep in mind that the company has a slightly low ROE. Therefore, this partly explains the drop in income.
So, in a next step, we compared the performance of MBV International to that of the industry and were disappointed to find that while the company reduced its profits, the industry increased its profits at a rate of 8, 1% over the same period.
Earnings growth is an important factor in stock valuation. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. This will help him determine if the future of the stock looks bright or ominous. If you’re wondering about the valuation of MBV International, check out this indicator of its price/earnings ratio, relative to its sector.
Does MBV International use its profits efficiently?
MBV International does not pay any dividends, which means that potentially all of its profits are reinvested in the company, which does not explain why the company’s profits have decreased if it retains all of its profits. So there could be other explanations for this. For example, the company’s business may deteriorate.
Overall, we have mixed feelings about MBV International. Although the company has a high earnings retention rate, its low rate of return is likely hampering its earnings growth. In conclusion, we would proceed with caution with this business and one way to do that would be to review the risk profile of the business. To learn about the 3 risks we have identified for MBV International, visit our risk dashboard for free.
Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.