Is Fujian Blue Hat Interactive Entertainment Technology Ltd.'s (NASDAQ:BHAT) Latest Stock Performance A Reflection Of Its Financial Health?
Fujian Blue Hat Interactive Entertainment Technology's (NASDAQ:BHAT) stock is up by a considerable 51% over the past month. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. Specifically, we decided to study Fujian Blue Hat Interactive Entertainment Technology's ROE in this article.
Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
See our latest analysis for Fujian Blue Hat Interactive Entertainment Technology
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 Fujian Blue Hat Interactive Entertainment Technology is:
16% = US$7.3m ÷ US$45m (Based on the trailing twelve months to June 2020).
The 'return' is the yearly profit. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.16 in profit.
Why Is ROE Important For Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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. 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.
Fujian Blue Hat Interactive Entertainment Technology's Earnings Growth And 16% ROE
To start with, Fujian Blue Hat Interactive Entertainment Technology's ROE looks acceptable. And on comparing with the industry, we found that the the average industry ROE is similar at 16%. Consequently, this likely laid the ground for the impressive net income growth of 23% seen over the past five years by Fujian Blue Hat Interactive Entertainment Technology. We reckon that there could also be other factors at play here. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.
We then compared Fujian Blue Hat Interactive Entertainment Technology's net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 40% in the same period, which is a bit concerning.
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. Doing so will help them establish if the stock's future looks promising or ominous. Is Fujian Blue Hat Interactive Entertainment Technology fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is Fujian Blue Hat Interactive Entertainment Technology Efficiently Re-investing Its Profits?
Summary
In total, we are pretty happy with Fujian Blue Hat Interactive Entertainment Technology's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. As a result, the decent growth in its earnings is not surprising. 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. Remember, the price of a stock is also dependent on the perceived risk. Therefore investors must keep themselves informed about the risks involved before investing in any company. Our risks dashboard would have the 3 risks we have identified for Fujian Blue Hat Interactive Entertainment Technology.
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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