Triductor Technology (Suzhou) Inc. (SHSE:688259) Is Going Strong But Fundamentals Appear To Be Mixed : Is There A Clear Direction For The Stock?

Triductor Technology (Suzhou)'s (SHSE:688259) stock is up by a considerable 18% over the past week. However, we wonder if the company's inconsistent financials would have any adverse impact on the current share price momentum. In this article, we decided to focus on Triductor Technology (Suzhou)'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 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 Triductor Technology (Suzhou)

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 Triductor Technology (Suzhou) is:

3.9% = CN¥59m ÷ CN¥1.5b (Based on the trailing twelve months to June 2024).

The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each CN¥1 of shareholders' capital it has, the company made CN¥0.04 in profit.

What Is The Relationship Between ROE And 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. 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.

Triductor Technology (Suzhou)'s Earnings Growth And 3.9% ROE

As you can see, Triductor Technology (Suzhou)'s ROE looks pretty weak. Not just that, even compared to the industry average of 5.9%, the company's ROE is entirely unremarkable. As a result, Triductor Technology (Suzhou)'s flat earnings over the past five years doesn't come as a surprise given its lower ROE.

Next, on comparing with the industry net income growth, we found that the industry grew its earnings by 17% 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). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Triductor Technology (Suzhou) fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Triductor Technology (Suzhou) Making Efficient Use Of Its Profits?

Despite having a normal three-year median payout ratio of 35% (implying that the company keeps 65% of its income) over the last three years, Triductor Technology (Suzhou) has seen a negligible amount of growth 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.

In addition, Triductor Technology (Suzhou) has been paying dividends over a period of three years suggesting that keeping up dividend payments is way more important to the management even if it comes at the cost of business growth.

Conclusion

On the whole, we feel that the performance shown by Triductor Technology (Suzhou) can be open to many interpretations. Even though it appears to be retaining most of its profits, given the low ROE, investors may not be benefitting from all that reinvestment after all. The low earnings growth suggests our theory correct. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. You can do your own research on Triductor Technology (Suzhou) and see how it has performed in the past by looking at this FREE detailed graph of past earnings, revenue and cash flows.

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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.