Tongcheng Travel Holdings (HKG:780) has had a great run on the stock market, with its share price increasing by a significant 16% over the past three months. Since a company's long-term fundamentals typically drive market outcomes, we wonder what role, if any, a company's financials play in price movements. I am thinking. Specifically, we decided to examine Tongcheng Travel Holdings' ROE in this article.
Return on equity or ROE is an important factor to be considered by a shareholder as it indicates how effectively their capital is being reinvested. Simply put, it is used to evaluate a company's profitability compared to its equity.
Check out our latest analysis for Tongcheng Travel Holdings.
How do you calculate return on equity?
of ROE calculation formula teeth:
Return on equity = Net income (from continuing operations) ÷ Shareholders' equity
Therefore, based on the above formula, Tojo Travel Holding's ROE is:
7.0% = CAD 1.2 billion ÷ CAD 18 billion (based on trailing twelve months to September 2023).
“Return” refers to a company's earnings over the past year. Another way to think of it is that for every HK$1 worth of shares, the company allowed him to earn a profit of HK$0.07.
Why is ROE important for profit growth?
So far, we have learned that ROE is a measure of a company's profitability. Depending on how much of these profits a 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 constant, the higher the ROE and profit retention, the higher the company's growth rate compared to companies that don't necessarily have these characteristics.
Tongcheng Travel Holdings' revenue growth and ROE 7.0%
At first glance, Tojo Travel Holding's ROE does not seem to be very promising. However, ROE is on par with the industry average of 6.5%, so we cannot completely rule it out. Having said that, Tongcheng Travel Holdings' net profit growth has been roughly flat over the past five years. Note that the company's ROE is not very high. So this provides some context for the flat earnings growth the company is seeing.
The company's net income growth is quite remarkable considering the fact that industry profits declined at a rate of 9.4% over the same five-year period.
Earnings growth is a big factor in stock valuation. 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. Is the 780 worth a lot of money? This infographic about a company's intrinsic value has everything you need to know.
Is Tojo Travel Holding making effective use of its internal reserves?
Tongcheng Travel Holdings does not pay dividends. This means that potentially all of the profits are being reinvested into the business. However, this does not explain why the company is not seeing growth. Therefore, there may be other explanations in this regard. For example, your company may be underperforming.
summary
Overall, we feel that Dongcheng Travel Holding Co., Ltd. has some positive attributes. Despite the low rate of return, the fact that the company reinvests a very high portion of its profits back into the business has undoubtedly contributed to the company's high profit growth. That said, the company's earnings are expected to accelerate, according to the latest industry analyst forecasts. To know more about the latest analyst forecasts for the company, check out this visualization of analyst forecasts for the company.
Valuation is complex, but we help make it simple.
Check out our comprehensive analysis to see if Tongcheng Travel Holdings is potentially overvalued or undervalued. Fair value estimates, risks and caveats, dividends, insider trading, and financial health.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, 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.
