Has Guangdong Lvtong New Energy Electric Vehicle Technology Co., LTD's (SZSE:301322) Impressive Stock Performance Got Anything to Do With Its Fundamentals?

Guangdong Lvtong New Energy Electric Vehicle Technology (SZSE:301322) has had a great run on the share market with its stock up by a significant 31% over the last month. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. In this article, we decided to focus on Guangdong Lvtong New Energy Electric Vehicle Technology's ROE.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

See our latest analysis for Guangdong Lvtong New Energy Electric Vehicle Technology

How To Calculate Return On Equity?

Return on equity 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 Guangdong Lvtong New Energy Electric Vehicle Technology is:

7.3% = CN¥208m ÷ CN¥2.9b (Based on the trailing twelve months to June 2024).

The 'return' is the profit over the last twelve months. 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?

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 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.

A Side By Side comparison of Guangdong Lvtong New Energy Electric Vehicle Technology's Earnings Growth And 7.3% ROE

On the face of it, Guangdong Lvtong New Energy Electric Vehicle Technology's ROE is not much to talk about. Yet, a closer study shows that the company's ROE is similar to the industry average of 6.4%. Particularly, the exceptional 27% net income growth seen by Guangdong Lvtong New Energy Electric Vehicle Technology over the past five years is pretty remarkable. 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.

As a next step, we compared Guangdong Lvtong New Energy Electric Vehicle Technology'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 15%.

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). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. 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 Guangdong Lvtong New Energy Electric Vehicle Technology is trading on a high P/E or a low P/E, relative to its industry.

Is Guangdong Lvtong New Energy Electric Vehicle Technology Making Efficient Use Of Its Profits?

While the company did pay out a portion of its dividend in the past, it currently doesn't pay a regular dividend. This is likely what's driving the high earnings growth number discussed above.

Summary

On the whole, we do feel that Guangdong Lvtong New Energy Electric Vehicle Technology has some positive attributes. 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. So far, we've only made a quick discussion around the company's earnings growth. You can do your own research on Guangdong Lvtong New Energy Electric Vehicle Technology and see how it has performed in the past by looking at this FREE detailed graph of past earnings, revenue and cash flows.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.