Could The Market Be Wrong About Beijing Easpring Material Technology CO.,LTD. (SZSE:300073) Given Its Attractive Financial Prospects?

With its stock down 34% over the past three months, it is easy to disregard Beijing Easpring Material TechnologyLTD (SZSE:300073). However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. In this article, we decided to focus on Beijing Easpring Material TechnologyLTD's ROE.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

See our latest analysis for Beijing Easpring Material TechnologyLTD

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 Beijing Easpring Material TechnologyLTD is:

12% = CN¥1.6b ÷ CN¥13b (Based on the trailing twelve months to March 2024).

The 'return' is the income the business earned over the last year. So, this means that for every CN¥1 of its shareholder's investments, the company generates a profit of CN¥0.12.

Why Is ROE Important For Earnings Growth?

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

Beijing Easpring Material TechnologyLTD's Earnings Growth And 12% ROE

To begin with, Beijing Easpring Material TechnologyLTD seems to have a respectable ROE. On comparing with the average industry ROE of 6.9% the company's ROE looks pretty remarkable. Probably as a result of this, Beijing Easpring Material TechnologyLTD was able to see an impressive net income growth of 48% over the last five years. We believe that there might also be other aspects that are positively influencing the company's earnings growth. For instance, the company has a low payout ratio or is being managed efficiently.

As a next step, we compared Beijing Easpring Material TechnologyLTD'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 12%.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Beijing Easpring Material TechnologyLTD's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Beijing Easpring Material TechnologyLTD Using Its Retained Earnings Effectively?

Beijing Easpring Material TechnologyLTD's ' three-year median payout ratio is on the lower side at 15% implying that it is retaining a higher percentage (85%) of its profits. So it looks like Beijing Easpring Material TechnologyLTD is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Besides, Beijing Easpring Material TechnologyLTD has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Looking at the current analyst consensus data, we can see that the company's future payout ratio is expected to rise to 25% over the next three years. Therefore, the expected rise in the payout ratio explains why the company's ROE is expected to decline to 8.7% over the same period.

Conclusion

On the whole, we feel that Beijing Easpring Material TechnologyLTD's performance has been quite good. 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. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. 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.