CIFI Ever Sunshine Services Group Limited (HKG:1995) The stock has shown weakness lately, but financials look solid: should potential shareholders take the plunge?

It’s hard to get excited after looking at the recent performance of CIFI Ever Sunshine Services Group (HKG: 1995), as its stock has fallen 54% in the past three months. However, a closer look at his healthy finances might make you think again. Since fundamentals generally determine long-term market outcomes, the company is worth looking into. Specifically, we decided to study the ROE of CIFI Ever Sunshine Services Group in this article.

ROE or return on equity is a useful tool for evaluating how effectively a company can generate returns on the investment it has received from its shareholders. In other words, it is a profitability ratio that measures the rate of return on capital contributed by the company’s shareholders.

Check out our latest analysis for CIFI Ever Sunshine Services 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 CIFI Ever Sunshine Services Group is:

17% = 808 million Canadian yen ÷ 4.9 billion domestic yen (based on the last twelve months to June 2022).

The “yield” is the amount earned after tax over the last twelve months. So this means that for every HK$1 investment of its shareholder, the company generates a profit of HK$0.17.

Why is ROE important for earnings growth?

So far, we have learned that ROE measures how efficiently a company generates its profits. We now need to assess how much profit the company is reinvesting or “retaining” for future growth, which then gives us an idea of ​​the company’s growth potential. Generally speaking, all things being equal, companies with high return on equity and earnings retention have a higher growth rate than companies that do not share these attributes.

Profit growth and ROE of 17% of the CIFI Ever Sunshine Services group

For starters, CIFI Ever Sunshine Services Group’s ROE looks acceptable. Compared to the industry average ROE of 6.8%, the company’s ROE looks quite remarkable. Probably because of this, CIFI Ever Sunshine Services Group has been able to see an impressive net profit growth of 48% over the past five years. However, there could also be other causes behind this growth. For example, it is possible that the management of the company has made good strategic decisions or that the company has a low payout ratio.

In a next step, we benchmarked CIFI Ever Sunshine Services Group’s net profit growth with the industry, and fortunately, we found that the growth seen by the company is higher than the industry average growth of 5 .6%.

SEHK: 1995 Past Earnings Growth September 19, 2022

The basis for attaching value to a company is, to a large extent, linked to the growth of its profits. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. This then helps them determine whether the action is placed for a bright or bleak future. Is the CIFI Ever Sunshine Services group correctly valued compared to other companies? These 3 assessment metrics might help you decide.

Is CIFI Ever Sunshine Services Group effectively using its retained earnings?

CIFI Ever Sunshine Services Group’s three-year median payout ratio to shareholders is 24%, which is quite low. This implies that the company retains 76% of its profits. So it looks like management is massively reinvesting earnings to grow their business, which is reflected in their earnings growth.

Additionally, CIFI Ever Sunshine Services Group has paid dividends over a three-year period, which means the company is pretty serious about sharing its profits with shareholders. After reviewing the latest analyst consensus data, we found that the company’s future payout ratio is expected to reach 29% over the next three years. Despite the higher expected payout ratio, the company’s ROE is not expected to change much.

Summary

Overall, we are quite satisfied with the performance of the CIFI Ever Sunshine Services group. Specifically, we like that the company reinvests a large portion of its earnings at a high rate of return. This of course caused the company to see substantial growth in profits. That said, the company’s earnings growth is expected to slow, as expected in current analyst estimates. For more on the company’s future earnings growth forecast, check out this free analyst forecast report for the company to learn more.

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.

Valuation is complex, but we help make it simple.

Find out if CIFI Ever Sunshine Services Group is potentially overvalued or undervalued by viewing our full analysis, which includes fair value estimates, risks and warnings, dividends, insider trading and financial health.

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