The recent performance of the stock of Modern Chinese Medicine Group Co., Ltd. (HKG:1643) driven by its attractive financial outlook?

Shares of Modern Chinese Medicine Group (HKG:1643) are up 50% in the past month. Since the market usually pays for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could influence the market. In this article, we have decided to focus on the ROEs of the modern Chinese medicine group.

Return on equity or ROE is a key metric used to gauge how effectively a company’s management is using the company’s capital. In other words, it is a profitability ratio that measures the rate of return on capital contributed by the company’s shareholders.

See our latest analysis for the Modern Chinese Medicine Group

How to calculate return on equity?

The ROE formula is:

Return on equity = Net income (from continuing operations) ÷ Equity

So, based on the formula above, the ROE for the Modern Chinese Medicine group is:

23% = 88 million Canadian yen ÷ 379 million domestic yen (based on the last twelve months to June 2022).

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$0.23.

What is the relationship between ROE and earnings growth?

We have already established that ROE serves as an effective profit-generating indicator for a company’s future earnings. Based on the share of its profits that 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.

Modern Chinese Medicine Group Earnings Growth and ROE of 23%

First, we recognize that the modern Chinese medicine group has a significantly high ROE. Additionally, the company’s ROE is above the industry average of 9.7%, which is quite remarkable. As a result, the modern Chinese medicine group’s outstanding 20% ​​net income growth over the past five years comes as no surprise.

In a next step, we compared Modern Chinese Medicine Group’s net income growth with the industry, and fortunately, we found that the growth observed by the company is higher than the industry average growth of 8, 8%.

Earnings growth is an important metric to consider when evaluating a stock. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. By doing so, he will get an idea if the title is heading for clear blue waters or if swampy waters await. Is Modern Chinese Medicine Group valued fairly compared to other companies? These 3 assessment metrics might help you decide.

Is the modern Chinese medicine group effectively reinvesting its profits?

Modern Chinese Medicine Group’s three-year median payout ratio is below 9.6%, meaning it retains a higher percentage (90%) of its earnings. This suggests that management reinvests most of the profits to grow the business, as evidenced by the growth seen by the business.

In addition to seeing earnings growth, Modern Chinese Medicine Group has only recently started paying dividends. It is quite possible that the company was trying to impress its shareholders.

Conclusion

Overall, we believe Modern Chinese Medicine Group’s performance has been quite good. In particular, it is good to see that the company is investing heavily in its business and, along with a high rate of return, this has resulted in significant growth in its profits. If the company continues to increase earnings as it has, it could have a positive impact on its share price given how earnings per share influence prices over the long term. Not to mention that stock price results also depend on the potential risks that a company may face. It is therefore important for investors to be aware of the risks associated with the business. Our risk dashboard would have the 2 risks we identified for the Modern Chinese Medicine group.

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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.