Stock Analysis

Has Beijing Jingyi Automation Equipment Co., Ltd.'s (SHSE:688652) Impressive Stock Performance Got Anything to Do With Its Fundamentals?

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SHSE:688652

Most readers would already be aware that Beijing Jingyi Automation Equipment's (SHSE:688652) stock increased significantly by 30% over the past three months. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. Specifically, we decided to study Beijing Jingyi Automation Equipment's ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. 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 Beijing Jingyi Automation Equipment

How Do You 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 Beijing Jingyi Automation Equipment is:

6.4% = CN¥132m ÷ CN¥2.1b (Based on the trailing twelve months to September 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¥0.06 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. 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.

A Side By Side comparison of Beijing Jingyi Automation Equipment's Earnings Growth And 6.4% ROE

At first glance, Beijing Jingyi Automation Equipment's ROE doesn't look very promising. However, given that the company's ROE is similar to the average industry ROE of 6.8%, we may spare it some thought. Particularly, the exceptional 39% net income growth seen by Beijing Jingyi Automation Equipment over the past five years is pretty remarkable. Given the slightly low ROE, it is likely that there could be some other aspects that are driving this growth. Such as - high earnings retention or an efficient management in place.

Next, on comparing with the industry net income growth, we found that Beijing Jingyi Automation Equipment's growth is quite high when compared to the industry average growth of 14% in the same period, which is great to see.

SHSE:688652 Past Earnings Growth January 15th 2025

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 Beijing Jingyi Automation Equipment fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Beijing Jingyi Automation Equipment Efficiently Re-investing Its Profits?

Beijing Jingyi Automation Equipment's three-year median payout ratio to shareholders is 8.8%, which is quite low. This implies that the company is retaining 91% of its profits. So it seems like the management is reinvesting profits heavily to grow its business and this reflects in its earnings growth number.

Along with seeing a growth in earnings, Beijing Jingyi Automation Equipment only recently started paying dividends. Its quite possible that the company was looking to impress its shareholders.

Conclusion

On the whole, we do feel that Beijing Jingyi Automation Equipment has some positive attributes. Even in spite of the low rate of return, the company has posted impressive earnings growth as a result of reinvesting heavily into its business. While we won't completely dismiss the company, what we would do, is try to ascertain how risky the business is to make a more informed decision around the company. Our risks dashboard would have the 2 risks we have identified for Beijing Jingyi Automation Equipment.

Valuation is complex, but we're here to simplify it.

Discover if Beijing Jingyi Automation Equipment might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

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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.