China Resources Double-Crane Pharmaceutical Co.,Ltd. (SHSE:600062) Stock Has Shown Weakness Lately But Financials Look Strong: Should Prospective Shareholders Make The Leap?

China Resources Double-Crane PharmaceuticalLtd (SHSE:600062) has had a rough month with its share price down 4.4%. However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. In this article, we decided to focus on China Resources Double-Crane PharmaceuticalLtd's ROE.

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.

Check out our latest analysis for China Resources Double-Crane PharmaceuticalLtd

How Is ROE Calculated?

ROE 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 China Resources Double-Crane PharmaceuticalLtd is:

12% = CN¥1.4b ÷ CN¥11b (Based on the trailing twelve months to September 2024).

The 'return' is the income the business earned over the last year. One way to conceptualize this is that for each CN¥1 of shareholders' capital it has, the company made CN¥0.12 in profit.

What Is The Relationship Between ROE And Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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 China Resources Double-Crane PharmaceuticalLtd's Earnings Growth And 12% ROE

To start with, China Resources Double-Crane PharmaceuticalLtd's ROE looks acceptable. Especially when compared to the industry average of 7.7% the company's ROE looks pretty impressive. This certainly adds some context to China Resources Double-Crane PharmaceuticalLtd's decent 8.4% net income growth seen over the past five years.

Next, on comparing China Resources Double-Crane PharmaceuticalLtd's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 9.1% over the last few years.

Earnings growth is a huge factor in stock valuation. 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. What is 600062 worth today? The intrinsic value infographic in our free research report helps visualize whether 600062 is currently mispriced by the market.

Is China Resources Double-Crane PharmaceuticalLtd Efficiently Re-investing Its Profits?

With a three-year median payout ratio of 30% (implying that the company retains 70% of its profits), it seems that China Resources Double-Crane PharmaceuticalLtd is reinvesting efficiently in a way that it sees respectable amount growth in its earnings and pays a dividend that's well covered.

Moreover, China Resources Double-Crane PharmaceuticalLtd is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years.

Conclusion

In total, we are pretty happy with China Resources Double-Crane PharmaceuticalLtd's performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. 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.