Is Suzhou Secote Precision Electronic Co.,LTD's (SHSE:603283) Latest Stock Performance A Reflection Of Its Financial Health?

Most readers would already be aware that Suzhou Secote Precision ElectronicLTD's (SHSE:603283) stock increased significantly by 26% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. In this article, we decided to focus on Suzhou Secote Precision ElectronicLTD's ROE.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

View our latest analysis for Suzhou Secote Precision ElectronicLTD

How Do You Calculate Return On Equity?

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 Suzhou Secote Precision ElectronicLTD is:

26% = CN¥780m ÷ CN¥3.0b (Based on the trailing twelve months to September 2024).

The 'return' is the yearly profit. One way to conceptualize this is that for each CN¥1 of shareholders' capital it has, the company made CN¥0.26 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. 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. 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.

Suzhou Secote Precision ElectronicLTD's Earnings Growth And 26% ROE

Firstly, we acknowledge that Suzhou Secote Precision ElectronicLTD has a significantly high ROE. Additionally, the company's ROE is higher compared to the industry average of 6.3% which is quite remarkable. As a result, Suzhou Secote Precision ElectronicLTD's exceptional 41% net income growth seen over the past five years, doesn't come as a surprise.

We then compared Suzhou Secote Precision ElectronicLTD'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 7.4% in the same 5-year period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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 Suzhou Secote Precision ElectronicLTD fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Suzhou Secote Precision ElectronicLTD 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

Overall, we are quite pleased with Suzhou Secote Precision ElectronicLTD's performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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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.