Are Robust Financials Driving The Recent Rally In JDM JingDaMachine (Ningbo) Co.Ltd's (SHSE:603088) Stock?

JDM JingDaMachine (Ningbo)Ltd (SHSE:603088) has had a great run on the share market with its stock up by a significant 36% over the last three months. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. Specifically, we decided to study JDM JingDaMachine (Ningbo)Ltd's ROE in this article.

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

How Do You Calculate Return On Equity?

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 JDM JingDaMachine (Ningbo)Ltd is:

22% = CN¥162m ÷ CN¥742m (Based on the trailing twelve months to September 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¥0.22 in profit.

View our latest analysis for JDM JingDaMachine (Ningbo)Ltd

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.

JDM JingDaMachine (Ningbo)Ltd's Earnings Growth And 22% ROE

To begin with, JDM JingDaMachine (Ningbo)Ltd seems to have a respectable ROE. Especially when compared to the industry average of 6.4% the company's ROE looks pretty impressive. This certainly adds some context to JDM JingDaMachine (Ningbo)Ltd's exceptional 24% net income growth seen over the past five years. We believe that there might also be other aspects that are positively influencing the company's earnings growth. Such as - high earnings retention or an efficient management in place.

We then compared JDM JingDaMachine (Ningbo)Ltd's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 7.1% in the same 5-year period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. Is JDM JingDaMachine (Ningbo)Ltd fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is JDM JingDaMachine (Ningbo)Ltd Efficiently Re-investing Its Profits?

JDM JingDaMachine (Ningbo)Ltd's significant three-year median payout ratio of 64% (where it is retaining only 36% of its income) suggests that the company has been able to achieve a high growth in earnings despite returning most of its income to shareholders.

Additionally, JDM JingDaMachine (Ningbo)Ltd has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders.

Summary

In total, we are pretty happy with JDM JingDaMachine (Ningbo)Ltd's performance. We are particularly impressed by the considerable earnings growth posted by the company, which was likely backed by its high ROE. While the company is paying out most of its earnings as dividends, it has been able to grow its earnings in spite of it, so that's probably a good sign. Up till now, we've only made a short study of the company's growth data. To gain further insights into JDM JingDaMachine (Ningbo)Ltd's past profit growth, check out this visualization 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.