DIT Group Limited (HKG:726) Stock's Been Sliding But Fundamentals Look Decent: Will The Market Correct The Share Price In The Future? - Simply Wall St

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DIT Group Limited (HKG:726) Stock's Been Sliding But Fundamentals Look Decent: Will The Market Correct The Share Price In The Future? - Simply Wall St

With its stock down 9.5% over the past three months, it is easy to disregard DIT Group (HKG:726). But if you pay close attention, you might find that its key financial indicators look quite decent, which could mean that the stock could potentially rise in the long-term given how markets usually reward more resilient long-term fundamentals. Particularly, we will be paying attention to DIT Group's ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Put another way, it reveals the company's success at turning shareholder investments into profits.

View our latest analysis for DIT Group

How Do You Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for DIT Group is:

6.0% = HK$170m ÷ HK$2.8b (Based on the trailing twelve months to December 2020).

The 'return' is the yearly profit. So, this means that for every HK$1 of its shareholder's investments, the company generates a profit of HK$0.06.

Why Is ROE Important For Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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.

DIT Group's Earnings Growth And 6.0% ROE

On the face of it, DIT Group's ROE is not much to talk about. A quick further study shows that the company's ROE doesn't compare favorably to the industry average of 8.2% either. Despite this, surprisingly, DIT Group saw an exceptional 62% net income growth over the past five years. We reckon that there could be other factors at play here. Such as - high earnings retention or an efficient management in place.

As a next step, we compared DIT Group's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 15%.

SEHK:726 Past Earnings Growth April 29th 2021

Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about DIT Group's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is DIT Group Efficiently Re-investing Its Profits?

Conclusion

On the whole, we do feel that DIT Group has some positive attributes. With a high rate of reinvestment, albeit at a low ROE, the company has managed to see a considerable growth in its earnings. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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This article by Simply Wall St is general in nature. 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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2021-04-29 00:00:00Z
https://simplywall.st/stocks/hk/real-estate/hkg-726/dit-group-shares/news/dit-group-limited-hkg726-stocks-been-sliding-but-fundamental

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