Is Zhejiang Jiaxin Silk Corp.,Ltd.'s (SZSE:002404) Recent Stock Performance Influenced By Its Fundamentals In Any Way?

Zhejiang Jiaxin SilkLtd's (SZSE:002404) stock is up by a considerable 13% over the past month. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. In this article, we decided to focus on Zhejiang Jiaxin SilkLtd'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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

View our latest analysis for Zhejiang Jiaxin SilkLtd

How Do You Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Zhejiang Jiaxin SilkLtd is:

11% = CN¥219m ÷ CN¥2.0b (Based on the trailing twelve months to June 2024).

The 'return' is the amount earned after tax over the last twelve months. That means that for every CN¥1 worth of shareholders' equity, the company generated CN¥0.11 in profit.

What Is The Relationship Between ROE And Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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.

Zhejiang Jiaxin SilkLtd's Earnings Growth And 11% ROE

At first glance, Zhejiang Jiaxin SilkLtd's ROE doesn't look very promising. However, the fact that the its ROE is quite higher to the industry average of 7.8% doesn't go unnoticed by us. This probably goes some way in explaining Zhejiang Jiaxin SilkLtd's moderate 8.8% growth over the past five years amongst other factors. That being said, the company does have a slightly low ROE to begin with, just that it is higher than the industry average. So there might well be other reasons for the earnings to grow. Such as- high earnings retention or the company belonging to a high growth industry.

Next, on comparing with the industry net income growth, we found that Zhejiang Jiaxin SilkLtd's growth is quite high when compared to the industry average growth of 1.7% in the same period, which is great to see.

Earnings growth is a huge factor in stock valuation. 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 Zhejiang Jiaxin SilkLtd fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Zhejiang Jiaxin SilkLtd Efficiently Re-investing Its Profits?

While Zhejiang Jiaxin SilkLtd has a three-year median payout ratio of 70% (which means it retains 30% of profits), the company has still seen a fair bit of earnings growth in the past, meaning that its high payout ratio hasn't hampered its ability to grow.

Moreover, Zhejiang Jiaxin SilkLtd is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years.

Summary

Overall, we feel that Zhejiang Jiaxin SilkLtd certainly does have some positive factors to consider. Especially the substantial growth in earnings backed by a decent ROE. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. So far, we've only made a quick discussion around the company's earnings growth. So it may be worth checking this free detailed graph of Zhejiang Jiaxin SilkLtd's past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.

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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.