With the stock down 15% over the past three months, it’s easy to overlook CIFI Ever Sunshine Services Group (HKG:1995). However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. Specifically, we decided to examine the ROE of CIFI Ever Sunshine Services Group in this article.
Return on Equity, or ROE, is a key metric used to assess how efficiently a company’s management is using the company’s capital. Put simply, it is used to assess a company’s profitability in relation to its equity.
Check out our latest analysis for the CIFI Ever Sunshine Services Group
How do you calculate return on equity?
That Formula for ROE is:
Return on Equity = Net Income (from continuing operations) ÷ Equity
So, based on the formula above, the ROE for the CIFI Ever Sunshine Services Group is:
15% = CN¥693M ÷ CN¥4.7B (Based on the trailing 12 months to December 2021).
The “yield” is the profit of the last twelve months. One way to conceptualize this is that the company made HK$0.15 profit for every HK$1 shareholder equity it has.
What does ROE have to do with earnings growth?
We have already established that ROE serves as an efficient profitable measure of a company’s future profits. We now need to evaluate how much profit the company is reinvesting or “keeping” for future growth, which then gives us an idea of the company’s growth potential. Assuming all else being equal, companies that exhibit both higher return on equity and higher earnings retention tend to be those that exhibit a higher growth rate than companies that do not share the same characteristics.
CIFI Ever Sunshine Services Group earnings growth and 15% ROE
First off, CIFI Ever Sunshine Services Group’s ROE looks decent. Compared to the industry average ROE of 7.2%, the company’s ROE looks pretty remarkable. This certainly contributes to the exceptional 48% net income growth at CIFI Ever Sunshine Services Group over the past five years. We assume that other factors could also play a role here. Such as – a high accumulation of profits or efficient management.
As a next step, we compared CIFI Ever Sunshine Services Group’s net income growth to that of the industry and were pleased to find that the company’s growth exceeded the average industry growth of 8.0%.
Much of the basis for increasing the value of a company is tied to its earnings growth. The investor should try to determine whether expected growth or earnings decline, whichever is the case, is being priced in. This then helps him determine whether the stock is placed for a bright or bleak future. Is CIFI Ever Sunshine Services Group fairly valued compared to other companies? These 3 evaluation criteria could help you with the decision.
Is CIFI Ever Sunshine Services Group using its profits efficiently?
CIFI Ever Sunshine Services Group has a really low three-year median payout ratio of 23%, which means it has the remaining 77% to reinvest in its business. So, it looks like CIFI Ever Sunshine Services Group is heavily reinvesting profits to grow its business, which is reflected in its earnings growth.
Additionally, CIFI Ever Sunshine Services Group is committed to continuing to share its profits with shareholders, which we infer from its long history of three years of paying a dividend. If we look at the latest analyst consensus data, we can see that the company’s future payout ratio is expected to increase to 30% over the next three years. However, CIFI Ever Sunshine Services Group’s future ROE is expected to increase to 22% despite the expected increase in the company’s payout ratio. We conclude that there may be other factors driving the expected growth in the company’s ROE.
Overall, we are quite satisfied with the performance of the CIFI Ever Sunshine Services Group. We particularly like that the company reinvests a large portion of its profits with a high return. Naturally, this has resulted in the company being able to significantly increase its profits. However, as projected by the latest analyst estimates, the company’s earnings growth is likely to slow. To learn more about the company’s future earnings growth projections, take a look free Report on analyst forecasts for the company to learn more.
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This Simply Wall St article is of a general nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your goals or financial situation. Our goal is to offer you long-term focused analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.