Stock Analysis

Tasly Pharmaceutical Group Co., Ltd's (SHSE:600535) Financials Are Too Obscure To Link With Current Share Price Momentum: What's In Store For the Stock?

SHSE:600535
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Most readers would already know that Tasly Pharmaceutical Group's (SHSE:600535) stock increased by 2.2% over the past week. However, we decided to study the company's mixed-bag of fundamentals to assess what this could mean for future share prices, as stock prices tend to be aligned with a company's long-term financial performance. In this article, we decided to focus on Tasly Pharmaceutical Group's ROE.

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. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

Check out our latest analysis for Tasly Pharmaceutical Group

How Is ROE Calculated?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Tasly Pharmaceutical Group is:

6.5% = CN¥845m ÷ CN¥13b (Based on the trailing twelve months to September 2024).

The 'return' is the yearly profit. So, this means that for every CN¥1 of its shareholder's investments, the company generates a profit of CN¥0.06.

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. 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 Tasly Pharmaceutical Group's Earnings Growth And 6.5% ROE

When you first look at it, Tasly Pharmaceutical Group's ROE doesn't look that attractive. Yet, a closer study shows that the company's ROE is similar to the industry average of 7.7%. But then again, Tasly Pharmaceutical Group's five year net income shrunk at a rate of 5.6%. Bear in mind, the company does have a slightly low ROE. Hence, this goes some way in explaining the shrinking earnings.

So, as a next step, we compared Tasly Pharmaceutical Group's performance against the industry and were disappointed to discover that while the company has been shrinking its earnings, the industry has been growing its earnings at a rate of 9.1% over the last few years.

past-earnings-growth
SHSE:600535 Past Earnings Growth January 30th 2025

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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. If you're wondering about Tasly Pharmaceutical Group's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Tasly Pharmaceutical Group Efficiently Re-investing Its Profits?

Despite having a normal three-year median payout ratio of 46% (where it is retaining 54% of its profits), Tasly Pharmaceutical Group has seen a decline in earnings as we saw above. So there might be other factors at play here which could potentially be hampering growth. For example, the business has faced some headwinds.

Additionally, Tasly Pharmaceutical Group has paid dividends over a period of at least ten years, which means that the company's management is determined to pay dividends even if it means little to no earnings growth.

Summary

Overall, we have mixed feelings about Tasly Pharmaceutical Group. While the company does have a high rate of profit retention, its low rate of return is probably hampering its earnings growth. With that said, we studied the latest analyst forecasts and found that while the company has shrunk its earnings in the past, analysts expect its earnings to grow in the future. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

Valuation is complex, but we're here to simplify it.

Discover if Tasly Pharmaceutical Group might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

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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.

About SHSE:600535

Tasly Pharmaceutical Group

Engages in the pharmaceutical business in China and internationally.

Flawless balance sheet, undervalued and pays a dividend.

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