Asia Grocery Distribution Limited's (HKG:8413) Stock Has Seen Strong Momentum: Does That Call For Deeper Study Of Its Financial Prospects?
Asia Grocery Distribution (HKG:8413) has had a great run on the share market with its stock up by a significant 108% over the last three months. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. Particularly, we will be paying attention to Asia Grocery Distribution's ROE today.
ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Put another way, it reveals the company's success at turning shareholder investments into profits.
How Is ROE Calculated?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Asia Grocery Distribution is:
0.8% = HK$781k ÷ HK$100m (Based on the trailing twelve months to September 2025).
The 'return' refers to a company's earnings over the last year. So, this means that for every HK$1 of its shareholder's investments, the company generates a profit of HK$0.01.
See our latest analysis for Asia Grocery Distribution
What Is The Relationship Between ROE And Earnings Growth?
We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.
Asia Grocery Distribution's Earnings Growth And 0.8% ROE
It is hard to argue that Asia Grocery Distribution's ROE is much good in and of itself. Even compared to the average industry ROE of 7.2%, the company's ROE is quite dismal. In spite of this, Asia Grocery Distribution was able to grow its net income considerably, at a rate of 47% in the last five years. Therefore, there could be other reasons behind this growth. For instance, the company has a low payout ratio or is being managed efficiently.
As a next step, we compared Asia Grocery Distribution'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 34%.
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). Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Asia Grocery Distribution's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is Asia Grocery Distribution Efficiently Re-investing Its Profits?
Asia Grocery Distribution doesn't pay any regular dividends currently which essentially means that it has been reinvesting all of its profits into the business. This definitely contributes to the high earnings growth number that we discussed above.
Conclusion
On the whole, we do feel that Asia Grocery Distribution 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. While we won't completely dismiss the company, what we would do, is try to ascertain how risky the business is to make a more informed decision around the company. To know the 4 risks we have identified for Asia Grocery Distribution visit our risks dashboard for free.
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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.