Is Chifeng Jilong Gold Mining Co.,Ltd.'s (SHSE:600988) Recent Stock Performance Tethered To Its Strong Fundamentals?

Most readers would already be aware that Chifeng Jilong Gold MiningLtd's (SHSE:600988) stock increased significantly by 26% over the past three months. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. Specifically, we decided to study Chifeng Jilong Gold MiningLtd's ROE in this article.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

See our latest analysis for Chifeng Jilong Gold MiningLtd

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 Chifeng Jilong Gold MiningLtd is:

11% = CN¥1.0b ÷ CN¥9.0b (Based on the trailing twelve months to March 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¥0.11 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. 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.

Chifeng Jilong Gold MiningLtd's Earnings Growth And 11% ROE

To begin with, Chifeng Jilong Gold MiningLtd seems to have a respectable ROE. On comparing with the average industry ROE of 7.4% the company's ROE looks pretty remarkable. This certainly adds some context to Chifeng Jilong Gold MiningLtd's exceptional 23% net income growth seen over the past five years. However, there could also be other causes behind this growth. For instance, the company has a low payout ratio or is being managed efficiently.

As a next step, we compared Chifeng Jilong Gold MiningLtd'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 12%.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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. Is Chifeng Jilong Gold MiningLtd fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Chifeng Jilong Gold MiningLtd Making Efficient Use Of Its Profits?

Chifeng Jilong Gold MiningLtd's ' three-year median payout ratio is on the lower side at 9.6% implying that it is retaining a higher percentage (90%) of its profits. So it looks like Chifeng Jilong Gold MiningLtd is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 11% of its profits over the next three years. However, Chifeng Jilong Gold MiningLtd's ROE is predicted to rise to 19% despite there being no anticipated change in its payout ratio.

Conclusion

In total, we are pretty happy with Chifeng Jilong Gold MiningLtd'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. On studying current analyst estimates, we found that analysts expect the company to continue its recent growth streak. 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.