Atour Lifestyle Holdings (NASDAQ:ATAT) stock is up 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 long-term financial health generally dictates market results. More precisely, 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 increasing its value and managing investors’ money. In other words, it reveals the company’s success in turning shareholder investments into profits.
Check out our latest analysis for Atour Lifestyle Holdings.
THE formula for ROE East:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
So, based on the formula above, the ROE of Atour Lifestyle Holdings is:
45% = CN¥1.2 billion ÷ CN¥2.6 billion (based on the trailing twelve months to September 2024).
“Return” refers to a company’s profits over the past year. This therefore means that for every dollar of its shareholder’s investment, the company generates a profit of $0.45.
We have already established that ROE is an effective profit-generating indicator for a company’s future earnings. Depending on how much of its profits the company chooses to reinvest or “retain”, we are then able to assess a company’s future ability to generate profits. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher a company’s growth rate compared to companies that don’t necessarily exhibit these characteristics.
First, we recognize that Atour Lifestyle Holdings has a considerably high ROE. Secondly, a comparison with the average ROE announced by the sector, i.e. 12%, does not go unnoticed by us either. Under these circumstances, a considerable growth in Atour Lifestyle Holdings’ net profit over five years, of 68%, was to be expected.
In the next step, we compared Atour Lifestyle Holdings’s net profit growth with the industry and fortunately, we found that the growth recorded by the company is higher than the average industry growth of 33%.
The basis on which to attach value to a company is, to a large extent, linked to its earnings growth. The investor should try to determine whether the expected growth or decline in earnings, whatever the case may be, is priced in. By doing so, he will have an idea whether the stock is heading towards clear blue waters or whether swampy waters await. Is ATAT correctly valued? This Intrinsic Business Value Infographic has everything you need to know.