Is Tongling Nonferrous Metals Group Co.,Ltd.'s (SZSE:000630) Latest Stock Performance A Reflection Of Its Financial Health?

Tongling Nonferrous Metals GroupLtd (SZSE:000630) has had a great run on the share market with its stock up by a significant 10% over the last three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. In this article, we decided to focus on Tongling Nonferrous Metals GroupLtd's ROE.

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. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

Check out our latest analysis for Tongling Nonferrous Metals GroupLtd

How To Calculate Return On Equity?

The formula for return on equity is:

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

So, based on the above formula, the ROE for Tongling Nonferrous Metals GroupLtd is:

9.6% = CN¥4.0b ÷ CN¥42b (Based on the trailing twelve months to September 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¥0.10 in profit.

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.

A Side By Side comparison of Tongling Nonferrous Metals GroupLtd's Earnings Growth And 9.6% ROE

On the face of it, Tongling Nonferrous Metals GroupLtd's ROE is not much to talk about. Although a closer study shows that the company's ROE is higher than the industry average of 7.5% which we definitely can't overlook. Especially when you consider Tongling Nonferrous Metals GroupLtd's exceptional 27% net income growth over the past five years. Bear in mind, the company does have a moderately low ROE. It is just that the industry ROE is lower. Hence, there might be some other aspects that are causing earnings to grow. E.g the company has a low payout ratio or could belong to a high growth industry.

Next, on comparing with the industry net income growth, we found that Tongling Nonferrous Metals GroupLtd's growth is quite high when compared to the industry average growth of 9.8% in the same period, which is great 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). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Tongling Nonferrous Metals GroupLtd fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Tongling Nonferrous Metals GroupLtd Making Efficient Use Of Its Profits?

The three-year median payout ratio for Tongling Nonferrous Metals GroupLtd is 34%, which is moderately low. The company is retaining the remaining 66%. So it seems that Tongling Nonferrous Metals GroupLtd is reinvesting efficiently in a way that it sees impressive growth in its earnings (discussed above) and pays a dividend that's well covered.

Besides, Tongling Nonferrous Metals GroupLtd has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. 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 32%. Regardless, the future ROE for Tongling Nonferrous Metals GroupLtd is predicted to rise to 13% despite there being not much change expected in its payout ratio.

Summary

Overall, we are quite pleased with Tongling Nonferrous Metals GroupLtd's performance. Specifically, we like that it has been reinvesting a high portion of its profits at a moderate rate of return, resulting in earnings expansion. 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.