Is Sunresin New Materials Co.,Ltd's (SZSE:300487) Recent Stock Performance Tethered To Its Strong Fundamentals?

Sunresin New MaterialsLtd (SZSE:300487) has had a great run on the share market with its stock up by a significant 32% over the last three months. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. Particularly, we will be paying attention to Sunresin New MaterialsLtd'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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.

See our latest analysis for Sunresin New MaterialsLtd

How Do You 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 Sunresin New MaterialsLtd is:

22% = CN¥783m ÷ CN¥3.6b (Based on the trailing twelve months to June 2024).

The 'return' is the income the business earned 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¥0.22 in profit.

Why Is ROE Important For Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

A Side By Side comparison of Sunresin New MaterialsLtd's Earnings Growth And 22% ROE

At first glance, Sunresin New MaterialsLtd seems to have a decent ROE. On comparing with the average industry ROE of 6.4% the company's ROE looks pretty remarkable. This probably laid the ground for Sunresin New MaterialsLtd's significant 30% net income growth seen over the past five years. We reckon that there could also be other factors at play here. Such as - high earnings retention or an efficient management in place.

Next, on comparing with the industry net income growth, we found that Sunresin New MaterialsLtd's growth is quite high when compared to the industry average growth of 6.3% in the same period, which is great to see.

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. If you're wondering about Sunresin New MaterialsLtd's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Sunresin New MaterialsLtd Making Efficient Use Of Its Profits?

Sunresin New MaterialsLtd's three-year median payout ratio is a pretty moderate 31%, meaning the company retains 69% of its income. By the looks of it, the dividend is well covered and Sunresin New MaterialsLtd is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Additionally, Sunresin New MaterialsLtd has paid dividends over a period of eight years which means that the company is pretty serious about sharing its profits with shareholders.

Summary

Overall, we are quite pleased with Sunresin New MaterialsLtd's performance. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. The latest industry analyst forecasts show that the company is expected to maintain its current growth rate. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page 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.