- China
- /
- Semiconductors
- /
- SHSE:688303
Is Xinjiang Daqo New Energy Co.,Ltd.'s (SHSE:688303) Recent Stock Performance Influenced By Its Fundamentals In Any Way?
Xinjiang Daqo New EnergyLtd's (SHSE:688303) stock is up by a considerable 58% over the past three months. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. Specifically, we decided to study Xinjiang Daqo New EnergyLtd'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.
See our latest analysis for Xinjiang Daqo New EnergyLtd
How To Calculate Return On Equity?
The formula for return on equity is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Xinjiang Daqo New EnergyLtd is:
1.6% = CN¥666m ÷ CN¥42b (Based on the trailing twelve months to June 2024).
The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every CNÂ¥1 worth of equity, the company was able to earn CNÂ¥0.02 in profit.
Why Is ROE Important For Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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 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.
A Side By Side comparison of Xinjiang Daqo New EnergyLtd's Earnings Growth And 1.6% ROE
As you can see, Xinjiang Daqo New EnergyLtd's ROE looks pretty weak. Even compared to the average industry ROE of 5.6%, the company's ROE is quite dismal. However, we we're pleasantly surprised to see that Xinjiang Daqo New EnergyLtd grew its net income at a significant rate of 22% in the last five years. We reckon that there could be other factors at play here. For instance, the company has a low payout ratio or is being managed efficiently.
We then compared Xinjiang Daqo New EnergyLtd's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 16% in the same 5-year period.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. Is Xinjiang Daqo New EnergyLtd fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is Xinjiang Daqo New EnergyLtd Using Its Retained Earnings Effectively?
Xinjiang Daqo New EnergyLtd's three-year median payout ratio is a pretty moderate 28%, meaning the company retains 72% of its income. By the looks of it, the dividend is well covered and Xinjiang Daqo New EnergyLtd is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.
Along with seeing a growth in earnings, Xinjiang Daqo New EnergyLtd only recently started paying dividends. Its quite possible that the company was looking to impress its shareholders. Existing analyst estimates suggest that the company's future payout ratio is expected to drop to 8.5% over the next three years. As a result, the expected drop in Xinjiang Daqo New EnergyLtd's payout ratio explains the anticipated rise in the company's future ROE to 5.0%, over the same period.
Summary
On the whole, we do feel that Xinjiang Daqo New EnergyLtd has some positive attributes. Despite its low rate of return, the fact that the company reinvests a very high portion of its profits into its business, no doubt contributed to its high earnings growth. With that said, the latest industry analyst forecasts reveal that the company's earnings are expected to accelerate. 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.
New: AI Stock Screener & Alerts
Our new AI Stock Screener scans the market every day to uncover opportunities.
• Dividend Powerhouses (3%+ Yield)
• Undervalued Small Caps with Insider Buying
• High growth Tech and AI Companies
Or build your own from over 50 metrics.
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:688303
Xinjiang Daqo New EnergyLtd
Engages in the research, development, production, and sale of polysilicon in China.
Flawless balance sheet with reasonable growth potential.