Could The Market Be Wrong About Tianneng Battery Group Co., Ltd. (SHSE:688819) Given Its Attractive Financial Prospects?

It is hard to get excited after looking at Tianneng Battery Group's (SHSE:688819) recent performance, when its stock has declined 26% over the past three months. However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. Specifically, we decided to study Tianneng Battery Group'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.

Check out our latest analysis for Tianneng Battery Group

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 Tianneng Battery Group is:

13% = CN¥2.0b ÷ CN¥16b (Based on the trailing twelve months to March 2024).

The 'return' is the income the business earned over the last year. So, this means that for every CN¥1 of its shareholder's investments, the company generates a profit of CN¥0.13.

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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. 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.

Tianneng Battery Group's Earnings Growth And 13% ROE

To begin with, Tianneng Battery Group seems to have a respectable ROE. On comparing with the average industry ROE of 8.2% the company's ROE looks pretty remarkable. This probably laid the ground for Tianneng Battery Group's moderate 8.4% net income growth seen over the past five years.

We then performed a comparison between Tianneng Battery Group's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 8.9% in the same 5-year period.

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 Tianneng Battery Group fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Tianneng Battery Group Making Efficient Use Of Its Profits?

Tianneng Battery Group has a three-year median payout ratio of 29%, which implies that it retains the remaining 71% of its profits. This suggests that its dividend is well covered, and given the decent growth seen by the company, it looks like management is reinvesting its earnings efficiently.

Additionally, Tianneng Battery Group has paid dividends over a period of three years which means that the company is pretty serious about sharing its profits with shareholders.

Conclusion

In total, we are pretty happy with Tianneng Battery Group'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. Having said that, looking at the current analyst estimates, we found that the company's earnings are expected to gain momentum. 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.