Can Mixed Fundamentals Have A Negative Impact on Xinyaqiang Silicon Chemistry Co.,Ltd (SHSE:603155) Current Share Price Momentum?

Xinyaqiang Silicon ChemistryLtd (SHSE:603155) has had a great run on the share market with its stock up by a significant 18% over the last month. But the company's key financial indicators appear to be differing across the board and that makes us question whether or not the company's current share price momentum can be maintained. Particularly, we will be paying attention to Xinyaqiang Silicon ChemistryLtd's ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

Check out our latest analysis for Xinyaqiang Silicon ChemistryLtd

How Is ROE Calculated?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Xinyaqiang Silicon ChemistryLtd is:

4.4% = CN¥101m ÷ CN¥2.3b (Based on the trailing twelve months to March 2024).

The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every CN¥1 worth of equity, the company was able to earn CN¥0.04 in profit.

What Has ROE Got To Do With Earnings Growth?

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

Xinyaqiang Silicon ChemistryLtd's Earnings Growth And 4.4% ROE

As you can see, Xinyaqiang Silicon ChemistryLtd's ROE looks pretty weak. Even compared to the average industry ROE of 6.4%, the company's ROE is quite dismal. As a result, Xinyaqiang Silicon ChemistryLtd's flat earnings over the past five years doesn't come as a surprise given its lower ROE.

We then compared Xinyaqiang Silicon ChemistryLtd's net income growth with the industry and found that the average industry growth rate was 7.9% in the same 5-year period.

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. Is Xinyaqiang Silicon ChemistryLtd fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Xinyaqiang Silicon ChemistryLtd Efficiently Re-investing Its Profits?

While the company did pay out a portion of its dividend in the past, it currently doesn't pay a regular dividend. We infer that the company has been reinvesting all of its profits to grow its business.

Summary

In total, we're a bit ambivalent about Xinyaqiang Silicon ChemistryLtd's performance. While the company does have a high rate of reinvestment, the low ROE means that all that reinvestment is not reaping any benefit to its investors, and moreover, its having a negative impact on the earnings growth. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. To gain further insights into Xinyaqiang Silicon ChemistryLtd's past profit growth, check out this visualization of past earnings, revenue and cash flows.

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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.

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