Has Xi'an Bright Laser Technologies Co.,Ltd.'s (SHSE:688333) Impressive Stock Performance Got Anything to Do With Its Fundamentals?

Most readers would already be aware that Xi'an Bright Laser TechnologiesLtd's (SHSE:688333) stock increased significantly by 45% over the past month. 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. Particularly, we will be paying attention to Xi'an Bright Laser TechnologiesLtd's ROE today.

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.

Check out our latest analysis for Xi'an Bright Laser TechnologiesLtd

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 Xi'an Bright Laser TechnologiesLtd is:

4.4% = CN¥212m ÷ CN¥4.9b (Based on the trailing twelve months to June 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¥0.04 in profit.

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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. 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.

Xi'an Bright Laser TechnologiesLtd's Earnings Growth And 4.4% ROE

It is quite clear that Xi'an Bright Laser TechnologiesLtd's ROE is rather low. Even when compared to the industry average of 6.9%, the ROE figure is pretty disappointing. In spite of this, Xi'an Bright Laser TechnologiesLtd was able to grow its net income considerably, at a rate of 27% in the last five years. Therefore, there could be other reasons behind this growth. For instance, the company has a low payout ratio or is being managed efficiently.

We then compared Xi'an Bright Laser TechnologiesLtd'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 8.6% in the same 5-year period.

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. Is Xi'an Bright Laser TechnologiesLtd fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Xi'an Bright Laser TechnologiesLtd Efficiently Re-investing Its Profits?

Xi'an Bright Laser TechnologiesLtd's ' three-year median payout ratio is on the lower side at 10.0% implying that it is retaining a higher percentage (90%) of its profits. This suggests that the management is reinvesting most of the profits to grow the business as evidenced by the growth seen by the company.

Additionally, Xi'an Bright Laser TechnologiesLtd has paid dividends over a period of four years which means that the company is pretty serious about sharing its profits with shareholders.

Summary

On the whole, we do feel that Xi'an Bright Laser TechnologiesLtd has some positive attributes. Despite its low rate of return, the fact that the company reinvests a very high portion of its profits into its business, no doubt contributed to its high earnings growth. Having said that, looking at the current analyst estimates, we found that the company's earnings are expected to gain momentum. 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.