Jiangsu New Technology Group Co.,Ltd.'s (SZSE:301229) Stock On An Uptrend: Could Fundamentals Be Driving The Momentum?

Jiangsu New Technology GroupLtd (SZSE:301229) has had a great run on the share market with its stock up by a significant 14% over the last week. 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 Jiangsu New Technology GroupLtd's ROE.

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 other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

See our latest analysis for Jiangsu New Technology GroupLtd

How Is ROE Calculated?

The formula for ROE is:

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

So, based on the above formula, the ROE for Jiangsu New Technology GroupLtd is:

7.0% = CN¥67m ÷ CN¥951m (Based on the trailing twelve months to September 2024).

The 'return' is the income the business earned over the last year. That means that for every CN¥1 worth of shareholders' equity, the company generated CN¥0.07 in profit.

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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 all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

Jiangsu New Technology GroupLtd's Earnings Growth And 7.0% ROE

At first glance, Jiangsu New Technology GroupLtd's ROE doesn't look very promising. Yet, a closer study shows that the company's ROE is similar to the industry average of 8.3%. Even so, Jiangsu New Technology GroupLtd has shown a fairly decent growth in its net income which grew at a rate of 7.1%. Given the slightly low ROE, it is likely that there could be some other aspects that are driving this growth. Such as - high earnings retention or an efficient management in place.

As a next step, we compared Jiangsu New Technology GroupLtd's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 9.2% in the same 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. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Jiangsu New Technology GroupLtd's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Jiangsu New Technology GroupLtd Efficiently Re-investing Its Profits?

Jiangsu New Technology GroupLtd's three-year median payout ratio to shareholders is 14% (implying that it retains 86% of its income), which is on the lower side, so it seems like the management is reinvesting profits heavily to grow its business.

Besides, Jiangsu New Technology GroupLtd has been paying dividends over a period of three years. This shows that the company is committed to sharing profits with its shareholders.

Conclusion

Overall, we feel that Jiangsu New Technology GroupLtd certainly does have some positive factors to consider. Namely, its respectable earnings growth, which it achieved due to it retaining most of its profits. However, given the low ROE, investors may not be benefitting from all that reinvestment after all.

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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.