Shandong Jinjing Science & Technology Stock Co.,Ltd (SHSE:600586) Stock's Been Sliding But Fundamentals Look Decent: Will The Market Correct The Share Price In The Future?

Simply Wall St · Oct 31, 2023 18:10

It is hard to get excited after looking at Shandong Jinjing Science & Technology StockLtd's (SHSE:600586) recent performance, when its stock has declined 14% over the past three months. But if you pay close attention, you might find that its key financial indicators look quite decent, which could mean that the stock could potentially rise in the long-term given how markets usually reward more resilient long-term fundamentals. Particularly, we will be paying attention to Shandong Jinjing Science & Technology StockLtd's ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors' money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

Check out our latest analysis for Shandong Jinjing Science & Technology StockLtd

How To 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 Shandong Jinjing Science & Technology StockLtd is:

6.2% = CN¥360m ÷ CN¥5.8b (Based on the trailing twelve months to September 2023).

The 'return' is the amount earned after tax over the last twelve months. One way to conceptualize this is that for each CN¥1 of shareholders' capital it has, the company made CN¥0.06 in profit.

What Is The Relationship Between ROE And Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company's earnings growth potential. 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.

A Side By Side comparison of Shandong Jinjing Science & Technology StockLtd's Earnings Growth And 6.2% ROE

At first glance, Shandong Jinjing Science & Technology StockLtd's ROE doesn't look very promising. However, its ROE is similar to the industry average of 7.2%, so we won't completely dismiss the company. Moreover, we are quite pleased to see that Shandong Jinjing Science & Technology StockLtd's net income grew significantly at a rate of 30% over the last five years. Given the slightly low ROE, it is likely that there could be some other aspects that are driving this growth. 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.

As a next step, we compared Shandong Jinjing Science & Technology StockLtd's 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 4.5%.

past-earnings-growth — SHSE:600586 Past Earnings Growth October 31st 2023

Earnings growth is an important metric to consider when valuing a stock. 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 Shandong Jinjing Science & Technology StockLtd's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Shandong Jinjing Science & Technology StockLtd Efficiently Re-investing Its Profits?

Shandong Jinjing Science & Technology StockLtd's ' three-year median payout ratio is on the lower side at 14% implying that it is retaining a higher percentage (86%) of its profits. This suggests that the management is reinvesting most of the profits to grow the business as evidenced by the growth seen by the company.

Additionally, Shandong Jinjing Science & Technology StockLtd has paid dividends over a period of five years which means that the company is pretty serious about sharing its profits with shareholders. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 16%. Still, forecasts suggest that Shandong Jinjing Science & Technology StockLtd's future ROE will rise to 15% even though the the company's payout ratio is not expected to change by much.

Conclusion

In total, it does look like Shandong Jinjing Science & Technology StockLtd has some positive aspects to its business. Even in spite of the low rate of return, the company has posted impressive earnings growth as a result of reinvesting heavily into its business. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.