Jiangsu King's Luck Brewery Joint-Stock Co.,Ltd.'s (SHSE:603369) Stock Is Going Strong: Is the Market Following Fundamentals?

Jiangsu King's Luck Brewery Ltd (SHSE:603369) has had a great run on the share market with its stock up by a significant 16% over the last three months. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. In this article, we decided to focus on Jiangsu King's Luck Brewery Ltd'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.

How To 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 Jiangsu King's Luck Brewery Ltd is:

24% = CN¥3.6b ÷ CN¥15b (Based on the trailing twelve months to September 2024).

The 'return' is the amount earned after tax over the last twelve months. Another way to think of that is that for every CN¥1 worth of equity, the company was able to earn CN¥0.24 in profit.

See our latest analysis for Jiangsu King's Luck Brewery Ltd

What Has ROE Got To Do With 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 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.

Jiangsu King's Luck Brewery Ltd's Earnings Growth And 24% ROE

To begin with, Jiangsu King's Luck Brewery Ltd has a pretty high ROE which is interesting. Secondly, even when compared to the industry average of 14% the company's ROE is quite impressive. As a result, Jiangsu King's Luck Brewery Ltd's exceptional 21% net income growth seen over the past five years, doesn't come as a surprise.

As a next step, we compared Jiangsu King's Luck Brewery Ltd'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 15%.

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. What is 603369 worth today? The intrinsic value infographic in our free research report helps visualize whether 603369 is currently mispriced by the market.

Is Jiangsu King's Luck Brewery Ltd Making Efficient Use Of Its Profits?

The three-year median payout ratio for Jiangsu King's Luck Brewery Ltd is 33%, which is moderately low. The company is retaining the remaining 67%. By the looks of it, the dividend is well covered and Jiangsu King's Luck Brewery Ltd is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Moreover, Jiangsu King's Luck Brewery Ltd 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. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 34% of its profits over the next three years. Accordingly, forecasts suggest that Jiangsu King's Luck Brewery Ltd's future ROE will be 22% which is again, similar to the current ROE.

Summary

On the whole, we feel that Jiangsu King's Luck Brewery Ltd's performance has been quite good. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. 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.

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

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.