Is Ningxia Baofeng Energy Group Co., Ltd.'s (SHSE:600989) Recent Performance Tethered To Its Attractive Financial Prospects?

Most readers would already know that Ningxia Baofeng Energy Group's (SHSE:600989) stock increased by 7.0% over the past three months. Given its impressive performance, we decided to study the company's key financial indicators as a company's long-term fundamentals usually dictate market outcomes. Particularly, we will be paying attention to Ningxia Baofeng Energy Group's ROE today.

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.

See our latest analysis for Ningxia Baofeng Energy Group

How Is ROE Calculated?

ROE 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 Ningxia Baofeng Energy Group is:

15% = CN¥5.9b ÷ CN¥40b (Based on the trailing twelve months to March 2024).

The 'return' is the amount earned after tax over the last twelve months. That means that for every CN¥1 worth of shareholders' equity, the company generated CN¥0.15 in profit.

Why Is ROE Important For 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.

Ningxia Baofeng Energy Group's Earnings Growth And 15% ROE

To begin with, Ningxia Baofeng Energy Group seems to have a respectable ROE. Further, the company's ROE compares quite favorably to the industry average of 6.3%. This probably laid the ground for Ningxia Baofeng Energy Group's moderate 8.9% net income growth seen over the past five years.

We then performed a comparison between Ningxia Baofeng Energy Group's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 7.9% in the same 5-year period.

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 600989 fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Ningxia Baofeng Energy Group Efficiently Re-investing Its Profits?

Ningxia Baofeng Energy Group has a healthy combination of a moderate three-year median payout ratio of 33% (or a retention ratio of 67%) and a respectable amount of growth in earnings as we saw above, meaning that the company has been making efficient use of its profits.

Besides, Ningxia Baofeng Energy Group has been paying dividends over a period of five years. This shows that the company is committed to sharing profits with its shareholders. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 29% of its profits over the next three years. Regardless, the future ROE for Ningxia Baofeng Energy Group is predicted to rise to 24% despite there being not much change expected in its payout ratio.

Conclusion

On the whole, we feel that Ningxia Baofeng Energy Group'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. 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 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.

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