Jiangsu Kuangshun Photosensitivity New-Material Stock Co., Ltd.'s (SZSE:300537) Stock is Soaring But Financials Seem Inconsistent: Will The Uptrend Continue?

Jiangsu Kuangshun Photosensitivity New-Material Stock (SZSE:300537) has had a great run on the share market with its stock up by a significant 47% over the last three months. But the company's key financial indicators appear to be differing across the board and that makes us question whether or not the company's current share price momentum can be maintained. Specifically, we decided to study Jiangsu Kuangshun Photosensitivity New-Material Stock's ROE in this article.

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.

See our latest analysis for Jiangsu Kuangshun Photosensitivity New-Material Stock

How To Calculate Return On Equity?

Return on equity 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 Jiangsu Kuangshun Photosensitivity New-Material Stock is:

1.1% = CN¥9.2m ÷ CN¥824m (Based on the trailing twelve months to September 2024).

The 'return' is the amount earned after tax over the last twelve months. That means that for every CN¥1 worth of shareholders' equity, the company generated CN¥0.01 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. 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. 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.

A Side By Side comparison of Jiangsu Kuangshun Photosensitivity New-Material Stock's Earnings Growth And 1.1% ROE

It is hard to argue that Jiangsu Kuangshun Photosensitivity New-Material Stock's ROE is much good in and of itself. Not just that, even compared to the industry average of 6.2%, the company's ROE is entirely unremarkable. As a result, Jiangsu Kuangshun Photosensitivity New-Material Stock's flat earnings over the past five years doesn't come as a surprise given its lower ROE.

Next, on comparing with the industry net income growth, we found that Jiangsu Kuangshun Photosensitivity New-Material Stock's reported growth was lower than the industry growth of 4.9% over the last few years, which is not something we like to see.

Earnings growth is a huge factor in stock valuation. 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. If you're wondering about Jiangsu Kuangshun Photosensitivity New-Material Stock's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Jiangsu Kuangshun Photosensitivity New-Material Stock Using Its Retained Earnings Effectively?

Jiangsu Kuangshun Photosensitivity New-Material Stock doesn't pay any regular dividends, meaning that the company is keeping all of its profits, which makes us wonder why it is retaining its earnings if it can't use them to grow its business. It looks like there might be some other reasons to explain the lack in that respect. For example, the business could be in decline.

Conclusion

In total, we're a bit ambivalent about Jiangsu Kuangshun Photosensitivity New-Material Stock's performance. While the company does have a high rate of profit retention, its low rate of return is probably hampering its earnings growth. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. 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.