Is Kinetic Development Group Limited's (HKG:1277) Stock's Recent Performance Being Led By Its Attractive Financial Prospects?
Kinetic Development Group's (HKG:1277) stock is up by a considerable 27% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Specifically, we decided to study Kinetic Development Group's ROE in this article.
Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
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 Kinetic Development Group is:
19% = CN¥1.6b ÷ CN¥8.2b (Based on the trailing twelve months to June 2025).
The 'return' is the yearly profit. One way to conceptualize this is that for each HK$1 of shareholders' capital it has, the company made HK$0.19 in profit.
See our latest analysis for Kinetic Development Group
What Is The Relationship Between ROE And Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.
Kinetic Development Group's Earnings Growth And 19% ROE
To start with, Kinetic Development Group's ROE looks acceptable. Further, the company's ROE compares quite favorably to the industry average of 8.7%. This certainly adds some context to Kinetic Development Group's decent 10% net income growth seen over the past five years.
Next, on comparing Kinetic Development Group's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 10% over the last few years.
Earnings growth is a huge factor in stock valuation. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. 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 Kinetic Development Group is trading on a high P/E or a low P/E, relative to its industry.
Is Kinetic Development Group Using Its Retained Earnings Effectively?
Kinetic Development Group has a healthy combination of a moderate three-year median payout ratio of 33% (or a retention ratio of 67%) and a respectable amount of growth in earnings as we saw above, meaning that the company has been making efficient use of its profits.
Additionally, Kinetic Development Group has paid dividends over a period of eight years which means that the company is pretty serious about sharing its profits with shareholders.
Summary
In total, we are pretty happy with Kinetic Development Group's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Not to forget, share price outcomes are also dependent on the potential risks a company may face. So it is important for investors to be aware of the risks involved in the business. You can see the 2 risks we have identified for Kinetic Development Group by visiting our risks dashboard for free on our platform here.
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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.