SITC International Holdings' (HKG:1308) stock is up by a considerable 11% 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 SITC International Holdings' ROE.
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.
View our latest analysis for SITC International Holdings
How To 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 SITC International Holdings is:
43% = US$1.0b ÷ US$2.4b (Based on the trailing twelve months to December 2024).
The 'return' is the yearly profit. That means that for every HK$1 worth of shareholders' equity, the company generated HK$0.43 in profit.
What Has ROE Got To Do With Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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. 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 SITC International Holdings' Earnings Growth And 43% ROE
First thing first, we like that SITC International Holdings has an impressive ROE. Secondly, even when compared to the industry average of 7.6% the company's ROE is quite impressive. This probably laid the groundwork for SITC International Holdings' moderate 15% net income growth seen over the past five years.
As a next step, we compared SITC International Holdings' net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 16% in the same period.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is 1308 fairly valued? This infographic on the company's intrinsic value has everything you need to know.
Is SITC International Holdings Making Efficient Use Of Its Profits?
The high three-year median payout ratio of 70% (or a retention ratio of 30%) for SITC International Holdings suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.
Moreover, SITC International Holdings is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 70%. Regardless, SITC International Holdings' ROE is speculated to decline to 29% despite there being no anticipated change in its payout ratio.
Conclusion
In total, we are pretty happy with SITC International Holdings' performance. In particular, its high ROE is quite noteworthy and also the probable explanation behind its considerable earnings growth. Yet, the company is retaining a small portion of its profits. Which means that the company has been able to grow its earnings in spite of it, so that's not too bad. With that said, on studying the latest analyst forecasts, we found that while the company has seen growth in its past earnings, analysts expect its future earnings to shrink. 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.