Has Guangdong New Grand Long Packing Co., Ltd.'s (SZSE:002836) Impressive Stock Performance Got Anything to Do With Its Fundamentals?

Guangdong New Grand Long Packing's (SZSE:002836) stock is up by a considerable 14% 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. In this article, we decided to focus on Guangdong New Grand Long Packing's ROE.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

View our latest analysis for Guangdong New Grand Long Packing

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 Guangdong New Grand Long Packing is:

13% = CN¥45m ÷ CN¥338m (Based on the trailing twelve months to June 2024).

The 'return' is the yearly profit. Another way to think of that is that for every CN¥1 worth of equity, the company was able to earn CN¥0.13 in profit.

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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. 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.

Guangdong New Grand Long Packing's Earnings Growth And 13% ROE

To begin with, Guangdong New Grand Long Packing seems to have a respectable ROE. Especially when compared to the industry average of 6.2% the company's ROE looks pretty impressive. Probably as a result of this, Guangdong New Grand Long Packing was able to see a decent growth of 7.9% over the last five years.

As a next step, we compared Guangdong New Grand Long Packing'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 1.3%.

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 Guangdong New Grand Long Packing fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Guangdong New Grand Long Packing Making Efficient Use Of Its Profits?

Guangdong New Grand Long Packing's high three-year median payout ratio of 125% suggests that the company is paying out more to its shareholders than what it is making. 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. You can see the 2 risks we have identified for Guangdong New Grand Long Packing by visiting our risks dashboard for free on our platform here.

Besides, Guangdong New Grand Long Packing has been paying dividends over a period of seven years. This shows that the company is committed to sharing profits with its shareholders.

Conclusion

Overall, we feel that Guangdong New Grand Long Packing certainly does have some positive factors to consider. Namely, its high earnings growth, which was likely due to its high ROE. However, investors could have benefitted even more from the high ROE, had the company been reinvesting more of its earnings. As discussed earlier, the company is retaining hardly any of its profits. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. So it may be worth checking this free detailed graph of Guangdong New Grand Long Packing's past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.

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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.