To The Moon

$Coupang, Inc.(CPNG)$ 📈 🔺🅱️🆄🅻🅻🅸🆂🅷 🔺📈 My 🎯$40 into EOY

Trading pre-market 06Nov24 @ $25.35

I’m looking to open positions in Open market, watching for a good entry point.

SOURCE: Simply Wall St

Most readers would already be aware that Coupang's (NYSE:CPNG) stock increased significantly by 24% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Specifically, we decided to study Coupang's ROE in this article.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

How Do You Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Coupang is:

25% = US$995m ÷ US$3.9b (Based on the trailing twelve months to June 2024).

The 'return' is the amount earned after tax over the last twelve months. That means that for every $1 worth of shareholders' equity, the company generated $0.25 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. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.

Coupang's Earnings Growth And 25% ROE

Firstly, we acknowledge that Coupang has a significantly high ROE. Additionally, a comparison with the average industry ROE of 21% also portrays the company's ROE in a good light. Therefore, it might not be wrong to say that the impressive five year 68% net income growth seen by Coupang was probably achieved as a result of the high ROE.

We then compared Coupang's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 18% in the same 5-year period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Coupang's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Coupang Making Efficient Use Of Its Profits?

Coupang doesn't pay any regular dividends to its shareholders, meaning that the company has been reinvesting all of its profits into the business. This is likely what's driving the high earnings growth number discussed above.

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