GreenTree Hospitality Group (NYSE:GHG) has seen a 26% decline in its stock over the past month, despite its fundamentally sound long-term financials. The company's return on equity (ROE), a metric indicating the profitability of a company in relation to shareholder's equity, is set at 10%. This figure is calculated based on a net profit of CN¥147m divided by shareholders' equity of CN¥1.4b for the trailing twelve months to June 2023.
This means that for every $1 of shareholder capital, GreenTree Hospitality Group has made $0.10 in profit. However, this ROE is still lower than the industry average of 17%. Over the last five years, GreenTree Hospitality Group's net income has shrunk at a rate of 44%, which could be due to factors such as a high payout ratio or poor capital allocation.
Despite the company's shrinking earnings, the industry has witnessed an earnings growth of 19% in the same period. Analysts are predicting a significant improvement in the company's earnings growth rate, but it remains to be seen whether these expectations are based on broad industry trends or on GreenTree's fundamentals.
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