Topsports International Holdings Limited (HKG: 6110) share is on the rise: is strong financial data driving the market?

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Shares of Topsports International Holdings (HKG: 6110) have risen 8.3% in the past three months. Given that the market rewards strong, long-term financials, we wonder if this is the case in this case. Specifically, we have decided to study the ROE of Topsports International Holdings in this article.

Return on equity or ROE is an important factor for a shareholder to consider because it tells them how efficiently their capital is being reinvested. Simply put, it is used to assess a company’s profitability against its equity.

See our latest analysis for Topsports International Holdings

How to calculate return on equity?

the return on equity formula is:

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

Thus, based on the above formula, the ROE of Topsports International Holdings is:

29% = CN ¥ 2.8b ÷ CN ¥ 9.7b (based on the last twelve months up to February 2021).

“Return” refers to a company’s profits over the past year. This means that for every HK $ 1 worth of equity, the company generated HK $ 0.29 in profit.

Why is ROE important for profit growth?

So far, we’ve learned that ROE is a measure of a company’s profitability. Based on the portion 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 everything else is equal, companies that have both a higher return on equity and higher profit retention are generally those that have a higher growth rate than companies that do not have the same characteristics.

Topports International Holdings profit growth and 29% ROE

First of all, we love that Topsports International Holdings has an impressive ROE. Second, even compared to the industry average of 9.5%, the company’s ROE is quite impressive. It is probably because of this that Topsports International Holdings has been able to achieve decent net income growth of 14% over the past five years.

Then comparing with the industry net income growth, we found that the growth of Topsports International Holdings is quite high compared to the industry average growth of 9.5% over the same period, which is great to see.

SEHK: 6110 Past Profit Growth June 29, 2021

Profit growth is a huge factor in the valuation of stocks. What investors next need to determine is whether the expected earnings growth, or lack thereof, is already built into the share price. By doing this, they will have an idea if the stock is heading for clear blue waters or if swampy waters are ahead of them. Is Topsports International Holdings properly valued against other companies? These 3 evaluation measures could help you decide.

Is Topsports International Holdings Efficiently Reinvesting Its Profits?

The high three-year median payout rate of 54% (or a retention rate of 46%) for Topsports International Holdings suggests that the growth of the company has not been really hampered despite the return of most of its revenue to its shareholders.

While Topsports International Holdings increased its profits, it was only recently that it started paying dividends, which likely means the company has decided to impress new and existing shareholders with a dividend. After studying the latest consensus data from analysts, we found that the company is expected to continue to pay out around 45% of its profits over the next three years. As a result, forecasts suggest that the future ROE of Topsports International Holdings will be 31%, which is again similar to the current ROE.

summary

Overall, we are quite happy with the performance of Topsports International Holdings. Especially the high ROE, which contributed to the impressive growth in earnings. Although the company only reinvested a small portion of its profits, it still managed to increase its profits, which is appreciable. Looking at current analysts’ estimates, we found that analysts expect the company to continue its recent streak of growth. 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 material. Simply Wall St has no position in any of the stocks mentioned.
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