Asia-potash International Investment (Guangzhou)Co.,Ltd. (SZSE:000893) Stock's Been Sliding But Fundamentals Look Decent: Will The Market Correct The Share Price In The Future?

Asia-potash International Investment (Guangzhou)Co.Ltd (SZSE:000893) has had a rough week with its share price down 10%. However, the company's fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. Particularly, we will be paying attention to Asia-potash International Investment (Guangzhou)Co.Ltd'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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.

See our latest analysis for Asia-potash International Investment (Guangzhou)Co.Ltd

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 Asia-potash International Investment (Guangzhou)Co.Ltd is:

5.5% = CN¥720m ÷ CN¥13b (Based on the trailing twelve months to September 2024).

The 'return' is the yearly profit. One way to conceptualize this is that for each CN¥1 of shareholders' capital it has, the company made CN¥0.06 in profit.

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

Asia-potash International Investment (Guangzhou)Co.Ltd's Earnings Growth And 5.5% ROE

When you first look at it, Asia-potash International Investment (Guangzhou)Co.Ltd's ROE doesn't look that attractive. However, its ROE is similar to the industry average of 6.2%, so we won't completely dismiss the company. Moreover, we are quite pleased to see that Asia-potash International Investment (Guangzhou)Co.Ltd's net income grew significantly at a rate of 38% over the last five years. Given the slightly low ROE, it is likely that there could be some other aspects that are driving this growth. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

Next, on comparing with the industry net income growth, we found that Asia-potash International Investment (Guangzhou)Co.Ltd's growth is quite high when compared to the industry average growth of 4.9% 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). This then helps them determine if the stock is placed for a bright or bleak future. Is Asia-potash International Investment (Guangzhou)Co.Ltd fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Asia-potash International Investment (Guangzhou)Co.Ltd Making Efficient Use Of Its Profits?

Given that Asia-potash International Investment (Guangzhou)Co.Ltd doesn't pay any regular dividends to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business.

Conclusion

In total, it does look like Asia-potash International Investment (Guangzhou)Co.Ltd has some positive aspects to its business. With a high rate of reinvestment, albeit at a low ROE, the company has managed to see a considerable growth in its earnings. We also studied the latest analyst forecasts and found that the company's earnings growth is expected be similar to its current growth rate. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

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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.