Is Shenzhen Kingkey Smart Agriculture Times Co.,Ltd's (SZSE:000048) Latest Stock Performance A Reflection Of Its Financial Health?

Shenzhen Kingkey Smart Agriculture TimesLtd (SZSE:000048) has had a great run on the share market with its stock up by a significant 6.9% over the last week. 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. Particularly, we will be paying attention to Shenzhen Kingkey Smart Agriculture TimesLtd's ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. 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 Shenzhen Kingkey Smart Agriculture TimesLtd

How Do You 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 Shenzhen Kingkey Smart Agriculture TimesLtd is:

17% = CN¥709m ÷ CN¥4.1b (Based on the trailing twelve months to June 2024).

The 'return' is the amount earned after tax over the last twelve months. Another way to think of that is that for every CN¥1 worth of equity, the company was able to earn CN¥0.17 in profit.

Why Is ROE Important For 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.

Shenzhen Kingkey Smart Agriculture TimesLtd's Earnings Growth And 17% ROE

To start with, Shenzhen Kingkey Smart Agriculture TimesLtd's ROE looks acceptable. Especially when compared to the industry average of 3.3% the company's ROE looks pretty impressive. This certainly adds some context to Shenzhen Kingkey Smart Agriculture TimesLtd's decent 8.0% net income growth seen over the past five years.

When you consider the fact that the industry earnings have shrunk at a rate of 7.2% in the same 5-year period, the company's net income growth is pretty remarkable.

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. Doing so will help them establish if the stock's future looks promising or ominous. Is Shenzhen Kingkey Smart Agriculture TimesLtd fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Shenzhen Kingkey Smart Agriculture TimesLtd Making Efficient Use Of Its Profits?

In Shenzhen Kingkey Smart Agriculture TimesLtd's case, its respectable earnings growth can probably be explained by its low three-year median payout ratio of 2.5% (or a retention ratio of 97%), which suggests that the company is investing most of its profits to grow its business.

Moreover, Shenzhen Kingkey Smart Agriculture TimesLtd is determined to keep sharing its profits with shareholders which we infer from its long history of eight years of paying a dividend.

Conclusion

In total, we are pretty happy with Shenzhen Kingkey Smart Agriculture TimesLtd'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. With that said, the latest industry analyst forecasts reveal that the company's earnings are expected to accelerate. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page 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.