Is Weakness In Chifeng Jilong Gold Mining Co.,Ltd. (SHSE:600988) Stock A Sign That The Market Could be Wrong Given Its Strong Financial Prospects?

With its stock down 5.2% over the past month, it is easy to disregard Chifeng Jilong Gold MiningLtd (SHSE:600988). However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. In this article, we decided to focus on Chifeng Jilong Gold MiningLtd's ROE.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

See our latest analysis for Chifeng Jilong Gold MiningLtd

How Is ROE Calculated?

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 Chifeng Jilong Gold MiningLtd is:

14% = CN¥1.3b ÷ CN¥9.5b (Based on the trailing twelve months to June 2024).

The 'return' is the income the business earned over the last year. So, this means that for every CN¥1 of its shareholder's investments, the company generates a profit of CN¥0.14.

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. 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.

Chifeng Jilong Gold MiningLtd's Earnings Growth And 14% ROE

To begin with, Chifeng Jilong Gold MiningLtd seems to have a respectable ROE. On comparing with the average industry ROE of 7.7% the company's ROE looks pretty remarkable. Probably as a result of this, Chifeng Jilong Gold MiningLtd was able to see an impressive net income growth of 22% over the last five years. We believe that there might also be other aspects that are positively influencing the company's earnings growth. Such as - high earnings retention or an efficient management in place.

Next, on comparing with the industry net income growth, we found that Chifeng Jilong Gold MiningLtd's growth is quite high when compared to the industry average growth of 10% in the same period, which is great to see.

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. If you're wondering about Chifeng Jilong Gold MiningLtd's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

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

Chifeng Jilong Gold MiningLtd has a really low three-year median payout ratio of 9.1%, meaning that it has the remaining 91% left over to reinvest into its business. This suggests that the management is reinvesting most of the profits to grow the business as evidenced by the growth seen by the company.

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 10%. However, Chifeng Jilong Gold MiningLtd's ROE is predicted to rise to 20% despite there being no anticipated change in its payout ratio.

Conclusion

On the whole, we feel that Chifeng Jilong Gold MiningLtd's performance has been quite good. 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. The latest industry analyst forecasts show that the company is expected to maintain its current growth rate. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

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.