Yahoo Finance Is Weakness In Hallenstein Glasson Holdings Limited (NZSE:HLG) Stock A Sign That The Market Could be Wrong Given Its Strong Financial Prospects?
With its stock down 9.8% over the past three months, it is easy to disregard Hallenstein Glasson Holdings (NZSE:HLG). But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. Particularly, we will be paying attention to Hallenstein Glasson Holdings' ROE today.
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. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
View our latest analysis for Hallenstein Glasson Holdings
How To Calculate Return On Equity?
ROE 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 Hallenstein Glasson Holdings is:
29% = NZ$25m ÷ NZ$87m (Based on the trailing twelve months to February 2022).
The 'return' is the profit over the last twelve months. So, this means that for every NZ$1 of its shareholder's investments, the company generates a profit of NZ$0.29.
What Is The Relationship Between ROE And Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.
A Side By Side comparison of Hallenstein Glasson Holdings' Earnings Growth And 29% ROE
To begin with, Hallenstein Glasson Holdings has a pretty high ROE which is interesting. Additionally, the company's ROE is higher compared to the industry average of 12% which is quite remarkable. Probably as a result of this, Hallenstein Glasson Holdings was able to see a decent net income growth of 9.9% over the last five years.
Next, on comparing Hallenstein Glasson Holdings' net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 8.4% in the same period.
Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Hallenstein Glasson Holdings''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is Hallenstein Glasson Holdings Efficiently Re-investing Its Profits?
While Hallenstein Glasson Holdings has a three-year median payout ratio of 86% (which means it retains 14% of profits), the company has still seen a fair bit of earnings growth in the past, meaning that its high payout ratio hasn't hampered its ability to grow.
Additionally, Hallenstein Glasson Holdings has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders.
Summary
In total, we are pretty happy with Hallenstein Glasson Holdings' performance. In particular, its high ROE is quite noteworthy and also the probable explanation behind its considerable earnings growth. Yet, the company is retaining a small portion of its profits. Which means that the company has been able to grow its earnings in spite of it, so that's not too bad. Up till now, we've only made a short study of the company's growth data. To gain further insights into Hallenstein Glasson Holdings' past profit growth, check out this visualization of past earnings, revenue and cash flows.
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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.
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