Jonjee Hi-Tech Industrial and Commercial Holding Co.,Ltd's (SHSE:600872) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?

Jonjee Hi-Tech Industrial and Commercial HoldingLtd (SHSE:600872) has had a rough three months with its share price down 11%. However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. Particularly, we will be paying attention to Jonjee Hi-Tech Industrial and Commercial HoldingLtd's ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

See our latest analysis for Jonjee Hi-Tech Industrial and Commercial HoldingLtd

How Do You 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 Jonjee Hi-Tech Industrial and Commercial HoldingLtd is:

66% = CN¥3.6b ÷ CN¥5.4b (Based on the trailing twelve months to September 2024).

The 'return' refers to a company's earnings over the last year. That means that for every CN¥1 worth of shareholders' equity, the company generated CN¥0.66 in profit.

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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.

Jonjee Hi-Tech Industrial and Commercial HoldingLtd's Earnings Growth And 66% ROE

First thing first, we like that Jonjee Hi-Tech Industrial and Commercial HoldingLtd has an impressive ROE. Second, a comparison with the average ROE reported by the industry of 7.6% also doesn't go unnoticed by us. This probably laid the groundwork for Jonjee Hi-Tech Industrial and Commercial HoldingLtd's moderate 10% net income growth seen over the past five years.

We then compared Jonjee Hi-Tech Industrial and Commercial HoldingLtd'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 2.5% in the same 5-year period.

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. What is 600872 worth today? The intrinsic value infographic in our free research report helps visualize whether 600872 is currently mispriced by the market.

Is Jonjee Hi-Tech Industrial and Commercial HoldingLtd Making Efficient Use Of Its Profits?

Jonjee Hi-Tech Industrial and Commercial HoldingLtd has a three-year median payout ratio of 29%, which implies that it retains the remaining 71% of its profits. This suggests that its dividend is well covered, and given the decent growth seen by the company, it looks like management is reinvesting its earnings efficiently.

Besides, Jonjee Hi-Tech Industrial and Commercial HoldingLtd has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 29%. However, Jonjee Hi-Tech Industrial and Commercial HoldingLtd's future ROE is expected to decline to 16% despite there being not much change anticipated in the company's payout ratio.

Summary

Overall, we are quite pleased with Jonjee Hi-Tech Industrial and Commercial HoldingLtd's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. Having said that, on studying current analyst estimates, we were concerned to see that while the company has grown its earnings in the past, analysts expect its earnings to shrink in the future. 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.