Is Shanghai Zhongzhou Special Alloy Materials Co., Ltd.'s (SZSE:300963) Recent Stock Performance Influenced By Its Fundamentals In Any Way?

Shanghai Zhongzhou Special Alloy Materials (SZSE:300963) has had a great run on the share market with its stock up by a significant 12% over the last week. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. In this article, we decided to focus on Shanghai Zhongzhou Special Alloy Materials' 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. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

See our latest analysis for Shanghai Zhongzhou Special Alloy Materials

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 Shanghai Zhongzhou Special Alloy Materials is:

8.0% = CN¥82m ÷ CN¥1.0b (Based on the trailing twelve months to June 2024).

The 'return' is the profit over the last twelve months. Another way to think of that is that for every CN¥1 worth of equity, the company was able to earn CN¥0.08 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. 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. 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 Shanghai Zhongzhou Special Alloy Materials' Earnings Growth And 8.0% ROE

On the face of it, Shanghai Zhongzhou Special Alloy Materials' 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, Shanghai Zhongzhou Special Alloy Materials reported a moderate 11% 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.

We then performed a comparison between Shanghai Zhongzhou Special Alloy Materials' net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 10% in the same 5-year period.

Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. Is Shanghai Zhongzhou Special Alloy Materials fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Shanghai Zhongzhou Special Alloy Materials Efficiently Re-investing Its Profits?

Shanghai Zhongzhou Special Alloy Materials' three-year median payout ratio to shareholders is 24% (implying that it retains 76% of its income), which is on the lower side, so it seems like the management is reinvesting profits heavily to grow its business.

Moreover, Shanghai Zhongzhou Special Alloy Materials is determined to keep sharing its profits with shareholders which we infer from its long history of three years of paying a dividend. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 19%. Regardless, the future ROE for Shanghai Zhongzhou Special Alloy Materials is predicted to rise to 13% despite there being not much change expected in its payout ratio.

Summary

On the whole, we do feel that Shanghai Zhongzhou Special Alloy Materials has some positive attributes. Despite its low rate of return, the fact that the company reinvests a very high portion of its profits into its business, no doubt contributed to its high earnings growth. With that said, the latest industry analyst forecasts reveal that the company's earnings are expected to accelerate. 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.