Is Ananda Drive Techniques(Shanghai)Co., Ltd.'s (SHSE:603350) Recent Stock Performance Influenced By Its Fundamentals In Any Way?

Ananda Drive Techniques(Shanghai)Co's (SHSE:603350) stock is up by a considerable 42% over the past three months. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. In this article, we decided to focus on Ananda Drive Techniques(Shanghai)Co's ROE.

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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.

Check out our latest analysis for Ananda Drive Techniques(Shanghai)Co

How Is ROE Calculated?

ROE can be calculated by using the formula:

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

So, based on the above formula, the ROE for Ananda Drive Techniques(Shanghai)Co is:

9.4% = CN¥126m ÷ CN¥1.3b (Based on the trailing twelve months to September 2024).

The 'return' is the amount earned after tax over the last twelve months. Another way to think of that is that for every CN¥1 worth of equity, the company was able to earn CN¥0.09 in profit.

What Has ROE Got To Do With 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.

Ananda Drive Techniques(Shanghai)Co's Earnings Growth And 9.4% ROE

On the face of it, Ananda Drive Techniques(Shanghai)Co's ROE is not much to talk about. However, its ROE is similar to the industry average of 8.3%, so we won't completely dismiss the company. Having said that, Ananda Drive Techniques(Shanghai)Co has shown a modest net income growth of 18% over the past five years. Considering the moderately low ROE, it is quite possible that there might be some other aspects that are positively influencing the company's earnings growth. Such as - high earnings retention or an efficient management in place.

Next, on comparing with the industry net income growth, we found that Ananda Drive Techniques(Shanghai)Co's growth is quite high when compared to the industry average growth of 9.2% in the same period, which is great to see.

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. This then helps them determine if the stock is placed for a bright or bleak future. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Ananda Drive Techniques(Shanghai)Co is trading on a high P/E or a low P/E, relative to its industry.

Is Ananda Drive Techniques(Shanghai)Co Efficiently Re-investing Its Profits?

Ananda Drive Techniques(Shanghai)Co doesn't pay any regular dividends, meaning that all of its profits are being reinvested in the business, which explains the fair bit of earnings growth the company has seen.

Conclusion

Overall, we feel that Ananda Drive Techniques(Shanghai)Co certainly does have some positive factors to consider. 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. While we won't completely dismiss the company, what we would do, is try to ascertain how risky the business is to make a more informed decision around the company. To know the 1 risk we have identified for Ananda Drive Techniques(Shanghai)Co visit our risks dashboard for free.

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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.