Jiangsu Kuangshun Photosensitivity New-Material Stock Co., Ltd.'s (SZSE:300537) Financials Are Too Obscure To Link With Current Share Price Momentum: What's In Store For the Stock?

Jiangsu Kuangshun Photosensitivity New-Material Stock's (SZSE:300537) stock is up by a considerable 23% over the past month. However, we decided to pay attention to the company's fundamentals which don't appear to give a clear sign about the company's financial health. In this article, we decided to focus on Jiangsu Kuangshun Photosensitivity New-Material Stock's ROE.

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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

Check out our latest analysis for Jiangsu Kuangshun Photosensitivity New-Material Stock

How Do You 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' refers to a company's earnings over the last year. 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. 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.

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

It is quite clear that Jiangsu Kuangshun Photosensitivity New-Material Stock's ROE is rather low. Even when compared to the industry average of 6.3%, the ROE figure is pretty disappointing. Therefore, Jiangsu Kuangshun Photosensitivity New-Material Stock's flat earnings over the past five years can possibly be explained by the low ROE amongst other factors.

As a next step, we compared Jiangsu Kuangshun Photosensitivity New-Material Stock's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 4.9% in the same period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Jiangsu Kuangshun Photosensitivity New-Material Stock is trading on a high P/E or a low P/E, relative 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, which means that it is retaining all of its earnings. This makes us question why the company is retaining so much of its profits and still generating almost no growth? 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. Even though it appears to be retaining most of its profits, given the low ROE, investors may not be benefitting from all that reinvestment after all. The low earnings growth suggests our theory correct. With that said, the latest industry analyst forecasts reveal that the company's earnings are expected to accelerate. 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.