China Nonferrous Metal Industry's Foreign Engineering and Construction Co.,Ltd.'s (SZSE:000758) Stock On An Uptrend: Could Fundamentals Be Driving The Momentum?

China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd's (SZSE:000758) stock is up by a considerable 16% over the past three months. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. Particularly, we will be paying attention to China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd's ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

View our latest analysis for China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd

How To 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 China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd is:

5.7% = CN¥512m ÷ CN¥9.0b (Based on the trailing twelve months to September 2024).

The 'return' is the profit over the last twelve months. So, this means that for every CN¥1 of its shareholder's investments, the company generates a profit of CN¥0.06.

What Is The Relationship Between ROE And 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 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 China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd's Earnings Growth And 5.7% ROE

On the face of it, China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd's ROE is not much to talk about. Next, when compared to the average industry ROE of 7.5%, the company's ROE leaves us feeling even less enthusiastic. Despite this, surprisingly, China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd saw an exceptional 74% net income growth over the past five years. Therefore, there could be other reasons behind this growth. Such as - high earnings retention or an efficient management in place.

As a next step, we compared China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 9.8%.

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. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd Making Efficient Use Of Its Profits?

China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd doesn't pay any regular dividends currently which essentially means that it has been reinvesting all of its profits into the business. This definitely contributes to the high earnings growth number that we discussed above.

Conclusion

Overall, we feel that China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd certainly does have some positive factors to consider. Despite its low rate of return, the fact that the company reinvests a very high portion of its profits into its business, no doubt contributed to its high earnings growth.

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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.