Declining Stock and Solid Fundamentals: Is The Market Wrong About Tianjin Ringpu Bio-Technology Co.,Ltd. (SZSE:300119)?

It is hard to get excited after looking at Tianjin Ringpu Bio-TechnologyLtd's (SZSE:300119) recent performance, when its stock has declined 9.2% over the past month. 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 Ringpu Bio-TechnologyLtd's ROE in this article.

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 other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

Check out our latest analysis for Tianjin Ringpu Bio-TechnologyLtd

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 Tianjin Ringpu Bio-TechnologyLtd is:

11% = CN¥517m ÷ CN¥4.9b (Based on the trailing twelve months to March 2024).

The 'return' is the profit over the last twelve months. So, this means that for every CN¥1 of its shareholder's investments, the company generates a profit of CN¥0.11.

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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.

Tianjin Ringpu Bio-TechnologyLtd's Earnings Growth And 11% ROE

When you first look at it, Tianjin Ringpu Bio-TechnologyLtd's ROE doesn't look that attractive. Although a closer study shows that the company's ROE is higher than the industry average of 7.7% which we definitely can't overlook. This certainly adds some context to Tianjin Ringpu Bio-TechnologyLtd's moderate 16% net income growth seen over the past five years. Bear in mind, the company does have a moderately low ROE. It is just that the industry ROE is lower. So there might well be other reasons for the 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 Tianjin Ringpu Bio-TechnologyLtd'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 an important metric to consider when valuing a stock. 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. If you're wondering about Tianjin Ringpu Bio-TechnologyLtd's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Tianjin Ringpu Bio-TechnologyLtd Making Efficient Use Of Its Profits?

Tianjin Ringpu Bio-TechnologyLtd has a healthy combination of a moderate three-year median payout ratio of 39% (or a retention ratio of 61%) and a respectable amount of growth in earnings as we saw above, meaning that the company has been making efficient use of its profits.

Besides, Tianjin Ringpu Bio-TechnologyLtd has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 39% of its profits over the next three years. As a result, Tianjin Ringpu Bio-TechnologyLtd's ROE is not expected to change by much either, which we inferred from the analyst estimate of 12% for future ROE.

Summary

Overall, we are quite pleased with Tianjin Ringpu Bio-TechnologyLtd's performance. Particularly, we like that the company is reinvesting heavily into its business at a moderate 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 company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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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.