Beijing JCZ Technology Co.,Ltd.'s (SHSE:688291) Financials Are Too Obscure To Link With Current Share Price Momentum: What's In Store For the Stock?

Beijing JCZ TechnologyLtd's (SHSE:688291) stock is up by a considerable 17% over the past month. However, we wonder if the company's inconsistent financials would have any adverse impact on the current share price momentum. Specifically, we decided to study Beijing JCZ TechnologyLtd's ROE in this article.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

See our latest analysis for Beijing JCZ TechnologyLtd

How Is ROE Calculated?

ROE 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 Beijing JCZ TechnologyLtd is:

4.0% = CN¥36m ÷ CN¥908m (Based on the trailing twelve months to September 2024).

The 'return' refers to a company's earnings over the last year. So, this means that for every CN¥1 of its shareholder's investments, the company generates a profit of CN¥0.04.

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.

Beijing JCZ TechnologyLtd's Earnings Growth And 4.0% ROE

As you can see, Beijing JCZ TechnologyLtd's ROE looks pretty weak. Not just that, even compared to the industry average of 6.0%, the company's ROE is entirely unremarkable. Therefore, the disappointing ROE therefore provides a background to Beijing JCZ TechnologyLtd's very little net income growth of 2.9% over the past five years.

As a next step, we compared Beijing JCZ TechnologyLtd's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 4.0% in the same period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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. If you're wondering about Beijing JCZ TechnologyLtd's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Beijing JCZ TechnologyLtd Using Its Retained Earnings Effectively?

While Beijing JCZ TechnologyLtd has a decent three-year median payout ratio of 36% (or a retention ratio of 64%), it has seen very little growth in earnings. Therefore, there might be some other reasons to explain the lack in that respect. For example, the business could be in decline.

Additionally, Beijing JCZ TechnologyLtd started paying a dividend only recently. So it looks like the management must have perceived that shareholders favor dividends over earnings growth.

Conclusion

On the whole, we feel that the performance shown by Beijing JCZ TechnologyLtd can be open to many interpretations. While the company does have a high rate of reinvestment, the low ROE means that all that reinvestment is not reaping any benefit to its investors, and moreover, its having a negative impact on the earnings growth. Wrapping up, we would proceed with caution with this company and one way of doing that would be to look at the risk profile of the business. To know the 1 risk we have identified for Beijing JCZ TechnologyLtd visit our risks dashboard for free.

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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.