Is International Housewares Retail Company Limited’s latest stock performance (HKG: 1373) driven by its strong fundamentals?
Most readers already know that International Housewares Retail (HKG: 1373) inventory has 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 decided to study the ROE of International Housewares Retail in this article.
Return on equity or ROE is a test of how effectively a company increases its value and manages investor money. In simpler terms, it measures a company’s profitability relative to equity.
Check out our latest analysis for international household goods retail
How is the ROE calculated?
ROE can be calculated using the formula:
Return on equity = Net income (from continuing operations) ÷ Equity
Thus, based on the above formula, the ROE for International Housewares Retail is:
32% = HK $ 279 million ÷ HK $ 868 million (based on the last twelve months up to October 2020).
The “return” is the amount earned after tax over the past twelve months. So this means that for every HK $ 1 invested by its shareholder, the company generates a profit of HK $ 0.32.
What does ROE have to do with 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 how much profit the business is reinvesting or “holding back” for future growth, which then gives us an idea of the growth potential of the business. Generally speaking, all other things being equal, companies with high return on equity and high profit retention have a higher growth rate than companies that do not share these attributes.
International Housewares Retail profit growth and 32% ROE
First, we recognize that International Housewares Retail has a significantly high ROE. In addition, the company’s ROE is higher than the industry average of 8.4%, which is quite remarkable. So the substantial 24% net income growth seen by International Housewares Retail over the past five years is not too surprising.
As a next step, we compared the net income growth of International Housewares Retail with the industry, and luckily we found that the growth observed by the company is higher than the industry average growth of 8.5 %.
The basis for attaching value to a business is, to a large extent, related 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 will help him determine if the future of the stock looks bright or worrisome. A good indicator of expected earnings growth is the P / E ratio which determines the price the market is willing to pay for a stock based on its earnings outlook. So, you might want to check if International Housewares Retail is trading high P / E or low P / E, relative to its industry.
Is International Housewares Retail Efficiently Using Its Retained Earnings?
International Housewares Retail has a large three-year median payout ratio of 82%, which means the company only keeps 18% of its revenue. This implies that the company has been able to achieve high profit growth despite returning most of its profits to shareholders.
Additionally, International Housewares Retail has paid dividends over a seven-year period, which means the company is very serious about sharing its profits with its shareholders.
Overall, we think the performance of International Housewares Retail is pretty good. We are particularly impressed with the significant profit growth posted by the company, possibly supported by its high ROE. Although the company pays out most of its profits as dividends, it was able to increase its profits despite this, so this is probably a good sign. So far, we’ve only scratched the surface of the company’s past performance by examining the fundamentals of the business. You can do your own research on International Housewares Retail and see how it has performed in the past by checking out this FREE detailed graphic past earnings, income and cash flow.
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