Atour Lifestyle Holdings’ (NASDAQ:ATAT) stock is up by a considerable 5.6% over the past month. Given the company’s impressive performance, we decided to study its financial indicators more closely as a company’s financial health over the long-term usually dictates market outcomes. Specifically, we decided to study Atour Lifestyle Holdings’ ROE in this article.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Put another way, it reveals the company’s success at turning shareholder investments into profits.
See our latest analysis for Atour Lifestyle Holdings
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
So, based on the above formula, the ROE for Atour Lifestyle Holdings is:
45% = CN¥1.2b ÷ CN¥2.6b (Based on the trailing twelve months to September 2024).
The ‘return’ refers to a company’s earnings over the last year. So, this means that for every $1 of its shareholder’s investments, the company generates a profit of $0.45.
We have already established that ROE serves as an efficient profit-generating gauge for a company’s future earnings. 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.
Firstly, we acknowledge that Atour Lifestyle Holdings has a significantly high ROE. Second, a comparison with the average ROE reported by the industry of 12% also doesn’t go unnoticed by us. Under the circumstances, Atour Lifestyle Holdings’ considerable five year net income growth of 68% was to be expected.
As a next step, we compared Atour Lifestyle Holdings’ 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 33%.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is ATAT fairly valued? This infographic on the company’s intrinsic value has everything you need to know.