Yahoo Finance Has Hallenstein Glasson Holdings Limited (NZSE:HLG) Stock's Recent Performance Got Anything to Do With Its Financial Health?
Most readers would already know that Hallenstein Glasson Holdings' (NZSE:HLG) stock increased by 4.4% over the past week. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. Specifically, we decided to study Hallenstein Glasson Holdings' ROE in this article.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Put another way, it reveals the company's success at turning shareholder investments into profits.
Check out our latest analysis for Hallenstein Glasson Holdings
How Is ROE Calculated?
Return on equity can be calculated by using the formula:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Hallenstein Glasson Holdings is:
39% = NZ$32m ÷ NZ$83m (Based on the trailing twelve months to February 2021).
The 'return' is the yearly profit. So, this means that for every NZ$1 of its shareholder's investments, the company generates a profit of NZ$0.39.
What Has ROE Got To Do With Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.
Hallenstein Glasson Holdings' Earnings Growth And 39% ROE
To begin with, Hallenstein Glasson Holdings has a pretty high ROE which is interesting. Second, a comparison with the average ROE reported by the industry of 14% also doesn't go unnoticed by us. Probably as a result of this, Hallenstein Glasson Holdings was able to see a decent net income growth of 16% over the last five years.
We then compared Hallenstein Glasson Holdings' net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 6.4% in the same period.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks 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 prospects. So, you may want to check if Hallenstein Glasson Holdings is trading on a high P/E or a low P/E, relative to its industry.
Is Hallenstein Glasson Holdings Efficiently Re-investing Its Profits?
Hallenstein Glasson Holdings has a significant three-year median payout ratio of 90%, meaning that it is left with only 9.6% to reinvest into its business. This implies that the company has been able to achieve decent earnings growth despite returning most of its profits to shareholders.
Additionally, Hallenstein Glasson Holdings has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders.
Conclusion
On the whole, we do feel that Hallenstein Glasson Holdings has some positive attributes. Namely, its high earnings growth, which was likely due to its high ROE. However, investors could have benefitted even more from the high ROE, had the company been reinvesting more of its earnings. As discussed earlier, the company is retaining hardly any of its profits. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. You can do your own research on Hallenstein Glasson Holdings and see how it has performed in the past by looking at this FREE detailed graph of past earnings, revenue and cash flows.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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