Has Qinghai Jinrui Mineral Development Co., Ltd's (SHSE:600714) Impressive Stock Performance Got Anything to Do With Its Fundamentals?

Qinghai Jinrui Mineral Development (SHSE:600714) has had a great run on the share market with its stock up by a significant 19% over the last week. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. Particularly, we will be paying attention to Qinghai Jinrui Mineral Development'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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

See our latest analysis for Qinghai Jinrui Mineral Development

How Is ROE Calculated?

The formula for ROE is:

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

So, based on the above formula, the ROE for Qinghai Jinrui Mineral Development is:

1.7% = CN¥12m ÷ CN¥747m (Based on the trailing twelve months to June 2024).

The 'return' is the yearly profit. So, this means that for every CN¥1 of its shareholder's investments, the company generates a profit of CN¥0.02.

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. 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.

Qinghai Jinrui Mineral Development's Earnings Growth And 1.7% ROE

As you can see, Qinghai Jinrui Mineral Development's ROE looks pretty weak. Even compared to the average industry ROE of 9.5%, the company's ROE is quite dismal. Although, we can see that Qinghai Jinrui Mineral Development saw a modest net income growth of 19% over the past five years. Therefore, the growth in earnings could probably have been caused by other variables. Such as - high earnings retention or an efficient management in place.

As a next step, we compared Qinghai Jinrui Mineral Development's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 19% in the same period.

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Qinghai Jinrui Mineral Development is trading on a high P/E or a low P/E, relative to its industry.

Is Qinghai Jinrui Mineral Development Using Its Retained Earnings Effectively?

The high three-year median payout ratio of 82% (or a retention ratio of 18%) for Qinghai Jinrui Mineral Development suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

While Qinghai Jinrui Mineral Development has been growing its earnings, it only recently started to pay dividends which likely means that the company decided to impress new and existing shareholders with a dividend.

Conclusion

On the whole, we do feel that Qinghai Jinrui Mineral Development has some positive attributes. Namely, its high earnings growth. We do however feel that the earnings growth number could have been even higher, had the company been reinvesting more of its earnings and paid out less dividends. Up till now, we've only made a short study of the company's growth data. To gain further insights into Qinghai Jinrui Mineral Development's past profit growth, check out this visualization of past earnings, revenue and cash flows.

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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.