Will Weakness in Tianjin Pharmaceutical Da Ren Tang Group Corporation Limited's (SHSE:600329) Stock Prove Temporary Given Strong Fundamentals?

With its stock down 4.2% over the past three months, it is easy to disregard Tianjin Pharmaceutical Da Ren Tang Group (SHSE:600329). 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. Specifically, we decided to study Tianjin Pharmaceutical Da Ren Tang Group's ROE in this article.

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.

See our latest analysis for Tianjin Pharmaceutical Da Ren Tang Group

How Do You 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 Pharmaceutical Da Ren Tang Group is:

14% = CN¥920m ÷ CN¥6.5b (Based on the trailing twelve months to September 2024).

The 'return' is the yearly profit. Another way to think of that is that for every CN¥1 worth of equity, the company was able to earn CN¥0.14 in profit.

Why Is ROE Important For 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 Tianjin Pharmaceutical Da Ren Tang Group's Earnings Growth And 14% ROE

To begin with, Tianjin Pharmaceutical Da Ren Tang Group seems to have a respectable ROE. On comparing with the average industry ROE of 7.7% the company's ROE looks pretty remarkable. Probably as a result of this, Tianjin Pharmaceutical Da Ren Tang Group was able to see a decent growth of 11% over the last five years.

Next, on comparing Tianjin Pharmaceutical Da Ren Tang Group'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 an important metric to consider when valuing a stock. 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. If you're wondering about Tianjin Pharmaceutical Da Ren Tang Group's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Tianjin Pharmaceutical Da Ren Tang Group Efficiently Re-investing Its Profits?

While Tianjin Pharmaceutical Da Ren Tang Group has a three-year median payout ratio of 81% (which means it retains 19% 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.

Additionally, Tianjin Pharmaceutical Da Ren Tang Group has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders.

Summary

In total, we are pretty happy with Tianjin Pharmaceutical Da Ren Tang Group's performance. 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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.