Tianjin Ruixin Technology Co.,Ltd (SZSE:300828) Is Going Strong But Fundamentals Appear To Be Mixed : Is There A Clear Direction For The Stock?

Tianjin Ruixin TechnologyLtd (SZSE:300828) has had a great run on the share market with its stock up by a significant 12% over the last week. 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 Tianjin Ruixin TechnologyLtd's ROE.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Put another way, it reveals the company's success at turning shareholder investments into profits.

See our latest analysis for Tianjin Ruixin TechnologyLtd

How To Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Tianjin Ruixin TechnologyLtd is:

8.1% = CN¥63m ÷ CN¥773m (Based on the trailing twelve months to June 2024).

The 'return' is the profit over the last twelve months. That means that for every CN¥1 worth of shareholders' equity, the company generated CN¥0.08 in profit.

Why Is ROE Important For 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. 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.

Tianjin Ruixin TechnologyLtd's Earnings Growth And 8.1% ROE

On the face of it, Tianjin Ruixin TechnologyLtd's ROE is not much to talk about. However, its ROE is similar to the industry average of 7.7%, so we won't completely dismiss the company. On the other hand, Tianjin Ruixin TechnologyLtd reported a moderate 6.0% net income growth over the past five years. Given the slightly low ROE, it is likely that there could be some other aspects that are driving this growth. Such as - high earnings retention or an efficient management in place.

Next, on comparing with the industry net income growth, we found that Tianjin Ruixin TechnologyLtd's reported growth was lower than the industry growth of 10% over the last few years, which is not something we like to see.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. Is Tianjin Ruixin TechnologyLtd fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Tianjin Ruixin TechnologyLtd Making Efficient Use Of Its Profits?

While Tianjin Ruixin TechnologyLtd has a three-year median payout ratio of 58% (which means it retains 42% of profits), the company has still seen a fair bit of earnings growth in the past, meaning that its high payout ratio hasn't hampered its ability to grow.

Moreover, Tianjin Ruixin TechnologyLtd is determined to keep sharing its profits with shareholders which we infer from its long history of four years of paying a dividend.

Conclusion

In total, we're a bit ambivalent about Tianjin Ruixin TechnologyLtd's performance. While no doubt its earnings growth is pretty respectable, the low profit retention could mean that the company's earnings growth could have been higher, had it been paying reinvesting a higher portion of its profits. An improvement in its ROE could also help future earnings growth. Up till now, we've only made a short study of the company's growth data. So it may be worth checking this free detailed graph of Tianjin Ruixin TechnologyLtd'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.