Maider Medical Industry Equipment Co. Ltd. (SHSE:688310) Stock Has Shown Weakness Lately But Financials Look Strong: Should Prospective Shareholders Make The Leap?

With its stock down 40% over the past three months, it is easy to disregard Maider Medical Industry Equipment (SHSE:688310). But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. Specifically, we decided to study Maider Medical Industry Equipment's ROE in this article.

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. Put another way, it reveals the company's success at turning shareholder investments into profits.

See our latest analysis for Maider Medical Industry Equipment

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 Maider Medical Industry Equipment is:

11% = CN¥104m ÷ CN¥951m (Based on the trailing twelve months to March 2024).

The 'return' is the income the business earned over the last year. That means that for every CN¥1 worth of shareholders' equity, the company generated CN¥0.11 in profit.

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. 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. 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.

Maider Medical Industry Equipment's Earnings Growth And 11% ROE

At first glance, Maider Medical Industry Equipment seems to have a decent ROE. Further, the company's ROE compares quite favorably to the industry average of 7.4%. Probably as a result of this, Maider Medical Industry Equipment was able to see a decent growth of 12% over the last five years.

As a next step, we compared Maider Medical Industry Equipment'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 6.5%.

Earnings growth is an important metric to consider when valuing a stock. 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 Maider Medical Industry Equipment fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Maider Medical Industry Equipment Efficiently Re-investing Its Profits?

The high three-year median payout ratio of 60% (or a retention ratio of 40%) for Maider Medical Industry Equipment suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Besides, Maider Medical Industry Equipment has been paying dividends over a period of four years. This shows that the company is committed to sharing profits with its shareholders.

Conclusion

In total, we are pretty happy with Maider Medical Industry Equipment's performance. We are particularly impressed by the considerable earnings growth posted by the company, which was likely backed by its high ROE. While the company is paying out most of its earnings as dividends, it has been able to grow its earnings in spite of it, so that's probably a good sign. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page 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.

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