H World Group Limited’s (NASDAQ:HTHT) Stock Has Fared Decently: Is the Market Following Strong Financials?

H World Group’s (NASDAQ:HTHT) stock is up by 8.2% over the past three months. Since the market usually pay for a company’s long-term financial health, we decided to study the company’s fundamentals to see if they could be influencing the market. Particularly, we will be paying attention to H World Group’s ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

Check out our latest analysis for H World Group

ROE 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 H World Group is:

31% = CN¥3.8b ÷ CN¥12b (Based on the trailing twelve months to September 2024).

The ‘return’ is the yearly profit. One way to conceptualize this is that for each $1 of shareholders’ capital it has, the company made $0.31 in profit.

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

Firstly, we acknowledge that H World Group has a significantly high ROE. Additionally, the company’s ROE is higher compared to the industry average of 12% which is quite remarkable. So, the substantial 46% net income growth seen by H World Group over the past five years isn’t overly surprising.

Next, on comparing with the industry net income growth, we found that H World Group’s growth is quite high when compared to the industry average growth of 33% in the same period, which is great to see.

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. Is HTHT fairly valued? This infographic on the company’s intrinsic value has everything you need to know.

The three-year median payout ratio for H World Group is 44%, which is moderately low. The company is retaining the remaining 56%. This suggests that its dividend is well covered, and given the high growth we discussed above, it looks like H World Group is reinvesting its earnings efficiently.

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