Q Technology (Group) Company Limited (HKG:1478) The stock has shown weakness lately, but financials look solid: should potential shareholders take the plunge?

With its stock down 23% in the past three months, it’s easy to overlook Q Technology (Group) (HKG: 1478). However, a closer look at his sound finances might make you think again. Since fundamentals generally determine long-term market outcomes, the company is worth looking into. Specifically, we decided to study the ROE of Q Technology (Group) in this article.

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 is a profitability ratio that measures the rate of return on capital contributed by the company’s shareholders.

Discover our latest analysis for Q Technology (Group)

How to calculate return on equity?

the return on equity formula is:

Return on equity = Net income (from continuing operations) ÷ Equity

So, based on the above formula, the ROE for Q Technology (Group) is:

25% = CN¥1.1b ÷ CN¥4.4b (based on trailing 12 months to June 2021).

The “yield” is the profit of 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$0.25.

Why is ROE important for earnings growth?

So far we have learned that ROE is a measure of a company’s profitability. 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.

Profit growth and 25% ROE of Q Technology (Group)

First of all, we like that Q Technology (Group) has an impressive ROE. Second, even when compared to the industry average of 15%, the company’s ROE is quite impressive. Under these circumstances, a considerable growth in the five-year net profit of Q Technology (Group) of 38% was to be expected.

Then, comparing with the industry net income growth, we found that the growth of Q Technology (Group) is quite high compared to the average industry growth of 5.0% during the same period, which is great to see.

SEHK: 1478 Past Earnings Growth Jan 25, 2022

The basis for attaching value to a company is, to a large extent, linked to the growth of its profits. It is important for an investor to know whether the market has priced in the expected growth (or decline) in the company’s earnings. This will help them determine if the future of the title looks bright or ominous. If you’re wondering about the valuation of Q Technology (Group), check out this indicator of its price/earnings ratio, relative to its sector.

Q Does Technology (Group) effectively reinvest its profits?

The three-year median payout ratio of Q Technology (Group) to shareholders is 15%, which is quite low. This implies that the company retains 85% of its profits. So it looks like Q Technology (Group) is massively reinvesting its earnings to grow its business, which is reflected in its earnings growth.

In addition, Q Technology (Group) paid dividends over a period of seven years. This shows that the company is committed to sharing profits with its shareholders. Our latest analyst data shows the company’s future payout ratio is expected to drop to 8.6% over the next three years. However, the company’s ROE is not expected to change much despite the lower expected payout ratio.

Conclusion

Overall, we are quite satisfied with the performance of Q Technology (Group). Specifically, we like that the company reinvests a large portion of its earnings at a high rate of return. This of course caused the company to see substantial growth in profits. That said, a study of the latest analyst forecasts shows that the company should see a slowdown in future earnings growth. For more on the company’s future earnings growth forecast, check out this free analyst forecast report for the company to learn more.

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.

About Virginia Ahn

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