Is LEPU ScienTech Medical Technology (Shanghai) Co., Ltd. (HKG:2291) stock struggling as a result of mixed financials?

LEPU ScienTech Medical Technology (Shanghai) (HKG:2291) has had a tough three months, with its share price down 14%. It appears that the market has completely ignored the positive aspects of the company's fundamentals and decided to focus more on the negative aspects. Fundamentals usually drive market outcomes, so it makes sense to study a company's financial health. In this article, we decided to focus on LEPU ScienTech Medical Technology (Shanghai)'s ROE.

Return on equity or ROE is a key measure used to evaluate how efficiently a company's management is utilizing the company's capital. Simply put, it is used to evaluate a company's profitability compared to its equity.

See our latest analysis for LEPU ScientTech Medical Technology (Shanghai).

How do you calculate return on equity?

of ROE calculation formula teeth:

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

So, based on the above formula, the ROE for LEPU ScienTech Medical Technology (Shanghai) is:

7.9% = CA$152 million ÷ CA$1.9 billion (based on trailing twelve months to December 2023).

“Return” is the annual profit. That means for every HK$1 of shareholders' equity, the company generated HK$0.08 of his profit.

Why is ROE important for profit growth?

So far, we have learned that ROE is a measure of a company's profitability. Now we need to assess how much profit the company reinvests or “retains” for future growth, which gives us an idea about the company's growth potential. Assuming everything else remains constant, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily have these characteristics.

LEPU ScienTech Medical Technology (Shanghai)'s revenue growth and ROE 7.9%

At first glance, LEPU ScienTech Medical Technology (Shanghai)'s ROE does not look very promising. However, upon closer inspection, we find that the company's ROE is in line with the industry average of 8.6%. Still, LEPU ScienTech Medical Technology (Shanghai) has a fairly healthy net profit growth of 9.4%. Considering the ROE is a bit low, there may be other aspects driving this growth. For example, the company's management may have made some good strategic decisions, or the company may have a low dividend payout ratio.

We then compared LEPU ScienTech Medical Technology (Shanghai)'s net income growth rate with the industry and found that the company's reported growth rate is similar to the industry average growth rate of 11% over the past few years. I did.

The foundations that give a company value have a lot to do with its revenue growth. Investors should check whether expected growth or decline in earnings has been factored in in any case. This will help you determine whether the stock's future is bright or bleak. If you're curious about LEPU ScienTech Medical Technology (Shanghai)'s valuation, check out this metric of its price-to-earnings ratio compared to its industry.

Does LEPU ScienTech Medical Technology (Shanghai) make effective use of its retained earnings?

LEPU ScienTech Medical Technology (Shanghai)'s very high three-year median payout ratio of 130% suggests that the company is paying out more to shareholders than it earned. However, this doesn't really hinder its ability to grow, as we saw earlier. However, a high payout ratio is certainly something to look at if a company is unable to maintain growth or if its performance deteriorates.

summary

Overall, I have mixed feelings about LEPU ScientTech Medical Technology (Shanghai). The company has experienced impressive profit growth, but its low ROE and low profit retention rate make it questionable whether that growth will continue if the business faces some risks. So far, we've only briefly covered the company's revenue growth.So it might be worth checking this free Detailed graph Analyze LEPU ScienTech Medical Technology (Shanghai)'s historical earnings, revenue, and cash flow to gain deeper insight into the company's performance.

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This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.