Most readers would already be aware that Shenzhen Kingkey Smart Agriculture TimesLtd's (SZSE:000048) stock increased significantly by 17% 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. Particularly, we will be paying attention to Shenzhen Kingkey Smart Agriculture TimesLtd's ROE today.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

How Is ROE Calculated?

The formula for return on equity is:

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

So, based on the above formula, the ROE for Shenzhen Kingkey Smart Agriculture TimesLtd is:

26% = CN¥1.1b ÷ CN¥4.2b (Based on the trailing twelve months to September 2024).

The 'return' is the income the business earned over the last year. One way to conceptualize this is that for each CN¥1 of shareholders' capital it has, the company made CN¥0.26 in profit.

What Is The Relationship Between ROE And Earnings Growth?

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.

A Side By Side comparison of Shenzhen Kingkey Smart Agriculture TimesLtd's Earnings Growth And 26% ROE

To begin with, Shenzhen Kingkey Smart Agriculture TimesLtd has a pretty high ROE which is interesting. Additionally, the company's ROE is higher compared to the industry average of 3.8% which is quite remarkable. Probably as a result of this, Shenzhen Kingkey Smart Agriculture TimesLtd was able to see a decent net income growth of 6.6% over the last five years.

Given that the industry shrunk its earnings at a rate of 11% over the last few years, the net income growth of the company is quite impressive.

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Shenzhen Kingkey Smart Agriculture TimesLtd fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Shenzhen Kingkey Smart Agriculture TimesLtd Using Its Retained Earnings Effectively?

Shenzhen Kingkey Smart Agriculture TimesLtd has a low three-year median payout ratio of 2.5%, meaning that the company retains the remaining 97% of its profits. This suggests that the management is reinvesting most of the profits to grow the business.

Moreover, Shenzhen Kingkey Smart Agriculture TimesLtd is determined to keep sharing its profits with shareholders which we infer from its long history of eight years of paying a dividend.

Conclusion

Overall, we are quite pleased with Shenzhen Kingkey Smart Agriculture TimesLtd's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. With that said, on studying the latest analyst forecasts, we found that while the company has seen growth in its past earnings, analysts expect its future earnings to shrink. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.

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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.