Most readers would already be aware that MINISO Group Holding's (NYSE:MNSO) stock increased significantly by 41% over the past week. Since the market usually pay for a company's long-term fundamentals, we decided to study the company's key performance indicators to see if they could be influencing the market. In this article, we decided to focus on MINISO Group Holding's ROE.
ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Put another way, it reveals the company's success at turning shareholder investments into profits.
How Is ROE Calculated?
Return on equity can be calculated by using the formula:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for MINISO Group Holding is:
25% = CN¥2.3b ÷ CN¥9.2b (Based on the trailing twelve months to December 2023).
The 'return' is the profit over the last twelve months. That means that for every $1 worth of shareholders' equity, the company generated $0.25 in profit.
What Is The Relationship Between ROE And Earnings Growth?
We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.
MINISO Group Holding's Earnings Growth And 25% ROE
To begin with, MINISO Group Holding has a pretty high ROE which is interesting. Further, even comparing with the industry average if 21%, the company's ROE is quite respectable. As a result, MINISO Group Holding's remarkable 70% net income growth seen over the past 5 years is likely aided by its high ROE.
We then compared MINISO Group Holding's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 15% in the same 5-year period.
Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about MINISO Group Holding's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is MINISO Group Holding Using Its Retained Earnings Effectively?
The high three-year median payout ratio of 53% (implying that it keeps only 47% of profits) for MINISO Group Holding suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.
Besides, MINISO Group Holding has been paying dividends over a period of three years. This shows that the company is committed to sharing profits with its shareholders. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 51%. As a result, MINISO Group Holding's ROE is not expected to change by much either, which we inferred from the analyst estimate of 27% for future ROE.
Summary
Overall, we are quite pleased with MINISO Group Holding's performance. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
