Is Icon Culture Global Company Limited’s (HKG:8500) latest stock market performance a reflection of its financial health?
Icon Culture Global (HKG:8500) stock is up 53% over the past week. Since the market usually pays for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could influence the market. In particular, we will be paying attention to Icon Culture Global’s ROE today.
Return on equity or ROE is an important factor for a shareholder to consider as it tells them how much of their capital is being reinvested. In other words, it reveals the company’s success in turning shareholders’ investments into profits.
See our latest analysis for Icon Culture Global
How to calculate return on equity?
the ROE formula is:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for Icon Culture Global is:
19% = CN¥21 million ÷ CN¥113 million (based on the last twelve months to September 2021).
The “yield” is the amount earned after tax over the last twelve months. Another way to think about this is that for every HK$1 of equity, the company was able to make a profit of HK$0.19.
Why is ROE important for earnings growth?
So far, we have learned that ROE measures how efficiently a company generates its profits. We now need to assess how much profit the company is reinvesting or “retaining” for future growth, which then gives us an idea of the company’s growth potential. Generally speaking, all things being equal, companies with high return on equity and earnings retention have a higher growth rate than companies that do not share these attributes.
Icon Culture Global Earnings Growth and ROE of 19%
At first glance, Icon Culture Global appears to have a decent ROE. Additionally, the company’s ROE compares quite favorably to the industry average of 9.3%. This likely laid the foundation for Icon Culture Global’s significant 25% net income growth seen over the past five years. We believe there could be other factors at play here as well. Such as – high revenue retention or effective management in place.
Then, comparing with the industry net income growth, we found that Icon Culture Global’s growth is quite high compared to the average industry growth of 3.7% over the same period. , which is great to see.
Earnings growth is an important metric to consider when evaluating a stock. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. This then helps them determine whether the action is placed for a bright or bleak future. Is Icon Culture Global correctly valued compared to other companies? These 3 assessment metrics might help you decide.
Is Icon Culture Global effectively using its retained earnings?
Icon Culture Global currently pays no dividends, which essentially means that it has reinvested all of its profits back into the business. This certainly contributes to the high earnings growth number we discussed above.
Overall, we are quite happy with the performance of Icon Culture Global. In particular, we appreciate the fact that the company is reinvesting heavily in its business, and at a high rate of return. Unsurprisingly, this led to impressive earnings growth. If the company continues to increase earnings as it has, it could have a positive impact on its share price given how earnings per share influence prices over the long term. Remember that the price of a stock also depends on the perceived risk. Therefore, investors should be aware of the risks involved before investing in a company. To learn about the 2 risks we have identified for Icon Culture Global, visit our Risk Dashboard for free.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.