Will Weakness in New Trend International Logis-Tech Co.,Ltd.'s (SZSE:300532) Stock Prove Temporary Given Strong Fundamentals?

It is hard to get excited after looking at New Trend International Logis-TechLtd's (SZSE:300532) recent performance, when its stock has declined 16% over the past month. But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. Specifically, we decided to study New Trend International Logis-TechLtd's ROE in this article.

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 New Trend International Logis-TechLtd

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 New Trend International Logis-TechLtd is:

20% = CN¥333m ÷ CN¥1.7b (Based on the trailing twelve months to September 2024).

The 'return' refers to a company's earnings over the last year. That means that for every CN¥1 worth of shareholders' equity, the company generated CN¥0.20 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. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.

New Trend International Logis-TechLtd's Earnings Growth And 20% ROE

At first glance, New Trend International Logis-TechLtd seems to have a decent ROE. On comparing with the average industry ROE of 4.5% the company's ROE looks pretty remarkable. This certainly adds some context to New Trend International Logis-TechLtd's exceptional 49% net income growth seen over the past five years. We believe that there might also be other aspects that are positively influencing the company's earnings growth. For instance, the company has a low payout ratio or is being managed efficiently.

As a next step, we compared New Trend International Logis-TechLtd's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 1.1%.

Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. Is New Trend International Logis-TechLtd fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is New Trend International Logis-TechLtd Efficiently Re-investing Its Profits?

The three-year median payout ratio for New Trend International Logis-TechLtd is 37%, which is moderately low. The company is retaining the remaining 63%. By the looks of it, the dividend is well covered and New Trend International Logis-TechLtd is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Moreover, New Trend International Logis-TechLtd is determined to keep sharing its profits with shareholders which we infer from its long history of eight years of paying a dividend.

Summary

In total, we are pretty happy with New Trend International Logis-TechLtd'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. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Remember, the price of a stock is also dependent on the perceived risk. Therefore investors must keep themselves informed about the risks involved before investing in any company. Our risks dashboard will have the 1 risk we have identified for New Trend International Logis-TechLtd.

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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.