The fundamentals of Minsheng Education Group Company Limited (HKG: 1569) look pretty solid: Could the market be wrong about the stock?


It’s hard to get excited after looking at the recent performance of Minsheng Education Group (HKG: 1569), when its stock has fallen 23% in the past three months. However, the company’s fundamentals look pretty decent, and long-term financial data is generally aligned with future market price movements. Specifically, we decided to study the ROE of Minsheng Education Group in this article.

ROE or return on equity is a useful tool to assess how effectively a company can generate the returns on investment it has received from its shareholders. Simply put, it is used to assess a company’s profitability against its equity.

Check out our latest analysis for Minsheng Education Group

How to calculate return on equity?

ROE can be calculated using the formula:

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

So, based on the above formula, the ROE for Minsheng Education Group is:

3.0% = CN ¥ 127m CN ¥ 4.2b (Based on the last twelve months up to December 2020).

“Return” refers to a company’s profits over the past year. One way to conceptualize this is that for every HK $ 1 of shareholder capital it has, the company has made HK $ 0.03 in profit.

Why is ROE important for profit growth?

We have already established that ROE is an effective indicator of profit generation for a company’s future profits. We now need to assess the profits that the business is reinvesting or “withholding” for future growth, which then gives us an idea of ​​the growth potential of the business. Assuming everything else remains the same, the higher the ROE and profit retention, the higher the growth rate of a business compared to businesses that don’t necessarily have these characteristics.

Minsheng Education Group profit growth and ROE of 3.0%

It is difficult to say that the ROE of Minsheng Education Group is very good in itself. Even compared to the industry average ROE of 9.1%, the company’s ROE is pretty dismal. However, we can see that Minsheng Education Group has recorded modest net income growth of 6.0% over the past five years. Therefore, the growth in earnings could probably have been caused by other variables. For example, the business has a low payout ratio or is managed efficiently.

As a next step, we compared the net income growth of Minsheng Education Group with the industry and were disappointed to see that the company’s growth is lower than the industry average growth of 15% over the past year. same period.

SEHK: 1569 Growth in past profits on July 26, 2021

Profit growth is an important metric to consider when valuing 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. In doing so, he will have an idea if the action is heading for clear blue waters or swampy waters ahead. What is 1569 worth today? The intrinsic value infographic in our free research report helps to visualize whether 1569 is currently poorly valued by the market.

Is Minsheng Education Group Using Profits Effectively?

With a median payout rate of 29% over three years (implying that the company keeps 71% of its profits), it looks like Minsheng Education Group is reinvesting effectively so that it sees respectable profit growth and pays a dividend. which is well covered.

In addition to seeing its profits increase, Minsheng Education Group only recently started paying dividends. It is quite possible that the company is trying to impress its shareholders. Our latest analyst data shows the company’s future payout ratio is expected to reach 40% over the next three years. Regardless, the future ROE of Minsheng Education Group is expected to reach 14% despite the expected increase in payout ratio. There could likely be other factors that could be driving future ROE growth.

Summary

Altogether, it seems that Minsheng Education Group has positive aspects for its activities. Namely, her respectable profit growth, which she achieved by keeping most of her profits. However, given the low ROE, investors may not benefit from all of this reinvestment after all. However, the latest analyst forecasts show that the company will continue to see its profits increase. To learn more about the latest analyst forecast for the business, check out this visualization of the analyst forecast for the business.

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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.
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About Geraldine Higgins

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