The China Pacific Insurance (Group) (SHSE:601601) share price has increased by a significant 35% 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 think so. Specifically, we decided to examine China Pacific Insurance (Group)’s 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. In other words, this reveals that the company has been successful in turning shareholder investments into profits.
Check out our latest analysis for China Pacific Insurance (Group).
How is ROE calculated?
The formula for calculating return on equity is as follows:
Return on equity = Net income (from continuing operations) ÷ Shareholders’ equity
So, based on the above formula, the ROE of China Pacific Insurance (Group) is:
12% = CA$35 billion ÷ CA$294 billion (based on trailing 12 months to June 2024).
“Return” refers to a company’s earnings over the past year. That means that for every CA$1 of shareholders’ equity, the company generated CA$0.12 in profit.
What relationship does ROE have with profit growth?
It has already been established that ROE serves as an indicator of how efficiently a company will generate future profits. 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 all 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.
China Pacific Insurance (Group) revenue growth and ROE 12%
First, China Pacific Insurance (Group)’s ROE appears to be within an acceptable range. Also, when we compare it to its industry, we find that the average industry ROE is similar at 10%. Despite its modest revenue, China Pacific Insurance (Group)’s five-year net profit growth was very low, averaging just 3.5%. Reasons that may be holding down earnings growth include, for example, a company’s high dividend payout ratio or a poor capital allocation for the business.
As a next step, we compared China Pacific Insurance (Group)’s net income growth rate with the industry and were disappointed to find that the company’s growth rate was below the industry average growth rate of 10% for the same period. Ta.
SHSE:601601 Historical Revenue Growth Rate October 28, 2024
Earnings growth is an important metric to consider when evaluating a stock. It’s important for investors to know whether the market is pricing in a company’s expected earnings growth (or decline). Doing so will help you determine whether a stock’s future is promising or ominous. One 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 whether China Pacific Insurance (Group) is trading on a higher or lower P/E ratio relative to its industry.
Is China Pacific Insurance (Group) reinvesting profits efficiently?
Although China Pacific Insurance (Group)’s three-year median dividend payout ratio was moderate at 36% (meaning the company retained the remaining 64% of its income), its profit growth was very It was low. Therefore, there may be other factors at play here that could potentially inhibit growth. For example, businesses are facing some headwinds.
Furthermore, China Pacific Insurance (Group) has been paying dividends for at least 10 years, and it is far more important to management to continue paying dividends, even at the expense of business growth. It suggests that. After reviewing the latest analyst consensus data, we found that the company is expected to continue paying out around 33% of its profit over the next three years. Therefore, the company’s future ROE is not expected to change much, with analysts forecasting it to be 12%.
summary
Overall, we feel that China Pacific Insurance (Group) has some positive features. However, given the high ROE and high profit retention rate, we would expect the company to deliver high earnings growth, which is not the case here. This suggests that there may be some external threat to the business that is hindering its growth. That said, the company’s revenue growth is expected to slow, according to the latest industry analyst forecasts. If you want to know the latest analyst forecasts for the company, check out this visualization of analyst forecasts for the company.
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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.
