Will Weakness in Jiangsu Provincial Agricultural Reclamation and Development Co.,Ltd.'s (SHSE:601952) Stock Prove Temporary Given Strong Fundamentals?

With its stock down 3.8% over the past week, it is easy to disregard Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd (SHSE:601952). 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. In this article, we decided to focus on Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd'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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.

Check out our latest analysis for Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd

How Do You Calculate Return On Equity?

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 Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd is:

12% = CN¥839m ÷ CN¥7.0b (Based on the trailing twelve months to June 2024).

The 'return' is the income the business earned over the last year. Another way to think of that is that for every CN¥1 worth of equity, the company was able to earn CN¥0.12 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. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

A Side By Side comparison of Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd's Earnings Growth And 12% ROE

At first glance, Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd seems to have a decent ROE. On comparing with the average industry ROE of 8.1% the company's ROE looks pretty remarkable. This probably laid the ground for Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd's moderate 7.7% net income growth seen over the past five years.

Next, on comparing with the industry net income growth, we found that Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd's growth is quite high when compared to the industry average growth of 1.3% 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 Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd Using Its Retained Earnings Effectively?

Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd has a three-year median payout ratio of 50%, which implies that it retains the remaining 50% 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.

Additionally, Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd has paid dividends over a period of six years which means that the company is pretty serious about sharing its profits with shareholders.

Summary

Overall, we are quite pleased with Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd'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. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

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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.