The fundamentals of KW Nelson Interior Design and Contracting Group Limited (HKG: 8411) seem pretty solid: Could the market be wrong about the stock?
It’s hard to get excited after looking at the recent performance of KW Nelson Interior Design and Contracting Group (HKG: 8411), as its inventory has fallen 12% in the past three months. However, stock prices are usually determined by a company’s long-term financial performance, which in this case looks quite promising. Specifically, we decided to study the ROE of KW Nelson Interior Design and Contracting Group in this article.
Return on equity or ROE is an important factor for a shareholder to consider because it tells them how effectively their capital is being reinvested. In simpler terms, it measures a company’s profitability relative to equity.
Check out our latest analysis for KW Nelson Interior Design and Contracting Group
How is the ROE calculated?
Return on equity can be calculated using the formula:
Return on equity = Net income (from continuing operations) ÷ Equity
Thus, based on the above formula, the ROE for KW Nelson Interior Design and Contracting Group is:
12% = HK $ 17 million ÷ HK $ 142 million (based on the last twelve months up to December 2020).
The “return” is the amount earned after tax over the past twelve months. So this means that for every Hong Kong dollar invested by its shareholder, the company generates a profit of 0.12 Hong Kong dollar.
What does ROE have to do with profit growth?
We have already established that ROE serves as an effective gauge to generate profit for the future profits of a business. Based on how much of that profit the company reinvests or “withholds”, and how effectively it does so, we are then able to assess a company’s profit growth potential. 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 compared to companies that do not. the same characteristics.
A side-by-side comparison of KW Nelson Interior Design and Contracting Group profit growth and 12% ROE
At first glance, KW Nelson Interior Design and Contracting Group appears to have a decent ROE. Additionally, the company’s ROE is similar to the industry average of 10%. Therefore, this likely laid the foundation for the impressive 21% net income growth seen over the past five years by KW Nelson Interior Design and Contracting Group. We believe there could be other factors at play here as well. For example, the business has a low payout rate or is managed efficiently.
As a next step, we compared the net profit growth of KW Nelson Interior Design and Contracting Group with the industry and luckily we found that the growth observed by the company is higher than the industry average growth of 15%.
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 determine whether the expected growth or decline in earnings, whatever the case, is taken into account. This then helps them determine whether the action is set for a bright or gloomy future. Does KW Nelson Interior Design and Contracting Group have fair value compared to other companies? These 3 evaluation measures could help you make a decision.
Is KW Nelson Interior Design and Contracting Group Efficiently Using Retained Earnings?
KW Nelson Interior Design and Contracting Group’s three-year median payout ratio is less than 8.7%, which means it retains a higher percentage (91%) of its profits. This suggests that management is reinvesting most of the profits to grow the business, as evidenced by the growth observed by the business.
Additionally, KW Nelson Interior Design and Contracting Group has paid dividends over a three-year period, which means the company is very serious about sharing its profits with its shareholders.
Overall, we believe that the performance of KW Nelson Interior Design and Contracting Group has been quite good. In particular, it is great to see that the company is investing heavily in its business and with a high rate of return, which has resulted in tremendous growth in its profits. If the company continues to grow earnings as it has, it could have a positive impact on its share price given the influence of earnings per share on stock prices over the long term. Remember that the price of a stock also depends on the perceived risk. Therefore, investors should keep themselves informed of the risks involved before investing in a business. To learn about Risk 1 that we have identified for KW Nelson Interior Design and Contracting Group, visit our risk dashboard for free.
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