Could The Market Be Wrong About Joincare Pharmaceutical Group Industry Co.,Ltd. (SHSE:600380) Given Its Attractive Financial Prospects?

With its stock down 7.9% over the past three months, it is easy to disregard Joincare Pharmaceutical Group IndustryLtd (SHSE:600380). But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. Specifically, we decided to study Joincare Pharmaceutical Group IndustryLtd's ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

View our latest analysis for Joincare Pharmaceutical Group IndustryLtd

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 Joincare Pharmaceutical Group IndustryLtd is:

13% = CN¥3.0b ÷ CN¥24b (Based on the trailing twelve months to September 2024).

The 'return' refers to a company's earnings over the last year. 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.

What Is The Relationship Between ROE And Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.

A Side By Side comparison of Joincare Pharmaceutical Group IndustryLtd's Earnings Growth And 13% ROE

To begin with, Joincare Pharmaceutical Group IndustryLtd 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, Joincare Pharmaceutical Group IndustryLtd was able to see a decent growth of 10% over the last five years.

Next, on comparing Joincare Pharmaceutical Group IndustryLtd'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. 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 Joincare Pharmaceutical Group IndustryLtd's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Joincare Pharmaceutical Group IndustryLtd Using Its Retained Earnings Effectively?

In Joincare Pharmaceutical Group IndustryLtd's case, its respectable earnings growth can probably be explained by its low three-year median payout ratio of 23% (or a retention ratio of 77%), which suggests that the company is investing most of its profits to grow its business.

Moreover, Joincare Pharmaceutical Group IndustryLtd 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

Overall, we are quite pleased with Joincare Pharmaceutical Group IndustryLtd's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. We also studied the latest analyst forecasts and found that the company's earnings growth is expected be similar to its current growth rate. 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.