Are Robust Financials Driving The Recent Rally In Jiangsu Phoenix Publishing & Media Corporation Limited's (SHSE:601928) Stock?

Most readers would already be aware that Jiangsu Phoenix Publishing & Media's (SHSE:601928) stock increased significantly by 7.4% over the past month. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. In this article, we decided to focus on Jiangsu Phoenix Publishing & Media'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. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

See our latest analysis for Jiangsu Phoenix Publishing & Media

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 Jiangsu Phoenix Publishing & Media is:

13% = CN¥2.5b ÷ CN¥19b (Based on the trailing twelve months to September 2024).

The 'return' is the amount earned after tax 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¥0.13 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. 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 all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

Jiangsu Phoenix Publishing & Media's Earnings Growth And 13% ROE

To begin with, Jiangsu Phoenix Publishing & Media seems to have a respectable ROE. Especially when compared to the industry average of 6.5% the company's ROE looks pretty impressive. Probably as a result of this, Jiangsu Phoenix Publishing & Media was able to see a decent growth of 14% over the last five years.

As a next step, we compared Jiangsu Phoenix Publishing & Media's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 3.3%.

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Jiangsu Phoenix Publishing & Media's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Jiangsu Phoenix Publishing & Media Efficiently Re-investing Its Profits?

Jiangsu Phoenix Publishing & Media has a significant three-year median payout ratio of 52%, meaning that it is left with only 48% to reinvest into its business. This implies that the company has been able to achieve decent earnings growth despite returning most of its profits to shareholders.

Besides, Jiangsu Phoenix Publishing & Media has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to rise to 63% over the next three years. Consequently, the higher expected payout ratio explains the decline in the company's expected ROE (to 9.7%) over the same period.

Summary

On the whole, we feel that Jiangsu Phoenix Publishing & Media's performance has been quite good. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. That being so, according to the latest industry analyst forecasts, the company's earnings are expected to shrink in the future. 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.