Are Robust Financials Driving The Recent Rally In Jiangsu Sinopep-Allsino Biopharmaceutical Co., Ltd.'s (SHSE:688076) Stock?

Jiangsu Sinopep-Allsino Biopharmaceutical (SHSE:688076) has had a great run on the share market with its stock up by a significant 34% over the last three months. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. In this article, we decided to focus on Jiangsu Sinopep-Allsino Biopharmaceutical'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 Jiangsu Sinopep-Allsino Biopharmaceutical

How Is ROE Calculated?

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 Jiangsu Sinopep-Allsino Biopharmaceutical is:

9.3% = CN¥211m ÷ CN¥2.3b (Based on the trailing twelve months to March 2024).

The 'return' is the income the business earned 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¥0.09 in profit.

What Has ROE Got To Do With 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. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

Jiangsu Sinopep-Allsino Biopharmaceutical's Earnings Growth And 9.3% ROE

At first glance, Jiangsu Sinopep-Allsino Biopharmaceutical's ROE doesn't look very promising. However, the fact that the company's ROE is higher than the average industry ROE of 7.6%, is definitely interesting. Particularly, the substantial 24% net income growth seen by Jiangsu Sinopep-Allsino Biopharmaceutical over the past five years is impressive . Bear in mind, the company does have a moderately low ROE. It is just that the industry ROE is lower. Hence, there might be some other aspects that are causing earnings to grow. For example, it is possible that the broader industry is going through a high growth phase, or that the company has a low payout ratio.

Next, on comparing with the industry net income growth, we found that Jiangsu Sinopep-Allsino Biopharmaceutical's growth is quite high when compared to the industry average growth of 9.2% in the same period, which is great to see.

Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. Has the market priced in the future outlook for 688076? You can find out in our latest intrinsic value infographic research report.

Is Jiangsu Sinopep-Allsino Biopharmaceutical Efficiently Re-investing Its Profits?

The three-year median payout ratio for Jiangsu Sinopep-Allsino Biopharmaceutical is 33%, which is moderately low. The company is retaining the remaining 67%. By the looks of it, the dividend is well covered and Jiangsu Sinopep-Allsino Biopharmaceutical is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

While Jiangsu Sinopep-Allsino Biopharmaceutical has seen growth in its earnings, it only recently started to pay a dividend. It is most likely that the company decided to impress new and existing shareholders with a dividend.

Summary

Overall, we are quite pleased with Jiangsu Sinopep-Allsino Biopharmaceutical's performance. In particular, it's great to see that the company has seen significant growth in its earnings backed by a respectable ROE and a high reinvestment rate. 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.

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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.

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