It is hard to get excited after looking at Haoxin Holdings’ (NASDAQ:HXHX) recent performance, when its stock has declined 20% over the past three months. 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 Haoxin Holdings’ 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.
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
So, based on the above formula, the ROE for Haoxin Holdings is:
17% = US$3.2m ÷ US$18m (Based on the trailing twelve months to December 2024).
The ‘return’ is the profit over the last twelve months. So, this means that for every $1 of its shareholder’s investments, the company generates a profit of $0.17.
Check out our latest analysis for Haoxin Holdings
So far, we’ve learned that ROE is a measure of a company’s profitability. 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.
At first glance, Haoxin Holdings seems to have a decent ROE. On comparing with the average industry ROE of 13% the company’s ROE looks pretty remarkable. Needless to say, we are quite surprised to see that Haoxin Holdings’ net income shrunk at a rate of 2.2% over the past five years. Therefore, there might be some other aspects that could explain this. For example, it could be that the company has a high payout ratio or the business has allocated capital poorly, for instance.
However, when we compared Haoxin Holdings’ growth with the industry we found that while the company’s earnings have been shrinking, the industry has seen an earnings growth of 6.2% in the same period. This is quite worrisome.
