Jinhui Mining Incorporation Limited (SHSE:603132) Stock's Been Sliding But Fundamentals Look Decent: Will The Market Correct The Share Price In The Future?

It is hard to get excited after looking at Jinhui Mining Incorporation's (SHSE:603132) recent performance, when its stock has declined 5.8% over the past week. But if you pay close attention, you might find that its key financial indicators look quite decent, which could mean that the stock could potentially rise in the long-term given how markets usually reward more resilient long-term fundamentals. Particularly, we will be paying attention to Jinhui Mining Incorporation's ROE today.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. Put another way, it reveals the company's success at turning shareholder investments into profits.

Check out our latest analysis for Jinhui Mining Incorporation

How Do You Calculate Return On Equity?

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 Jinhui Mining Incorporation is:

14% = CN¥448m ÷ CN¥3.1b (Based on the trailing twelve months to September 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 Is The Relationship Between ROE And Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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.

Jinhui Mining Incorporation's Earnings Growth And 14% ROE

To start with, Jinhui Mining Incorporation's ROE looks acceptable. Further, the company's ROE compares quite favorably to the industry average of 7.5%. Probably as a result of this, Jinhui Mining Incorporation was able to see a decent growth of 6.9% over the last five years.

Next, on comparing with the industry net income growth, we found that Jinhui Mining Incorporation's reported growth was lower than the industry growth of 9.8% over the last few years, which is not something we like to see.

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). Doing so will help them establish if the stock's future looks promising or ominous. Is 603132 fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Jinhui Mining Incorporation Using Its Retained Earnings Effectively?

The really high three-year median payout ratio of 135% for Jinhui Mining Incorporation suggests that the company is paying its shareholders more than what it is earning. However, this hasn't really hampered its ability to grow as we saw earlier. It would still be worth keeping an eye on that high payout ratio, if for some reason the company runs into problems and business deteriorates. To know the 2 risks we have identified for Jinhui Mining Incorporation visit our risks dashboard for free.

Along with seeing a growth in earnings, Jinhui Mining Incorporation only recently started paying dividends. Its quite possible that the company was looking to impress its shareholders. Our latest analyst data shows that the future payout ratio of the company is expected to drop to 43% over the next three years. As a result, the expected drop in Jinhui Mining Incorporation's payout ratio explains the anticipated rise in the company's future ROE to 21%, over the same period.

Conclusion

Overall, we feel that Jinhui Mining Incorporation certainly does have some positive factors to consider. The company has grown its earnings moderately as a result of its impressive ROE. Yet, the business is retaining hardly any of its profits. This might have negative implications on the company's future growth. Having said that, looking at the current analyst estimates, we found that the company's earnings are expected to gain momentum. 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.