Is Fujian SBS Zipper Science&Technology Co., Ltd's (SZSE:002098) Latest Stock Performance A Reflection Of Its Financial Health?

Fujian SBS Zipper Science&Technology's (SZSE:002098) stock is up by a considerable 24% 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 Fujian SBS Zipper Science&Technology's ROE.

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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.

Check out our latest analysis for Fujian SBS Zipper Science&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 Fujian SBS Zipper Science&Technology is:

11% = CN¥134m ÷ CN¥1.2b (Based on the trailing twelve months to March 2024).

The 'return' is the profit over the last twelve months. So, this means that for every CN¥1 of its shareholder's investments, the company generates a profit of CN¥0.11.

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. 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.

A Side By Side comparison of Fujian SBS Zipper Science&Technology's Earnings Growth And 11% ROE

On the face of it, Fujian SBS Zipper Science&Technology's ROE is not much to talk about. However, the fact that the company's ROE is higher than the average industry ROE of 7.3%, is definitely interesting. Even more so after seeing Fujian SBS Zipper Science&Technology's exceptional 55% net income growth over the past five years. Bear in mind, the company does have a moderately low ROE. It is just that the industry ROE is lower. Hence, there might be some other aspects that are causing earnings to grow. E.g the company has a low payout ratio or could belong to a high growth industry.

As a next step, we compared Fujian SBS Zipper Science&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 1.4%.

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). This then helps them determine if the stock is placed for a bright or bleak future. Is Fujian SBS Zipper Science&Technology fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Fujian SBS Zipper Science&Technology Using Its Retained Earnings Effectively?

The three-year median payout ratio for Fujian SBS Zipper Science&Technology is 30%, which is moderately low. The company is retaining the remaining 70%. By the looks of it, the dividend is well covered and Fujian SBS Zipper Science&Technology is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Besides, Fujian SBS Zipper Science&Technology has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders.

Conclusion

In total, we are pretty happy with Fujian SBS Zipper Science&Technology's performance. Specifically, we like that it has been reinvesting a high portion of its profits at a moderate rate of return, resulting in earnings expansion. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Remember, the price of a stock is also dependent on the perceived risk. Therefore investors must keep themselves informed about the risks involved before investing in any company. To know the 1 risk we have identified for Fujian SBS Zipper Science&Technology visit our risks dashboard for free.

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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.

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