Is Nanjing Bestway Intelligent Control Technology Co., Ltd.'s (SZSE:301195) Recent Stock Performance Tethered To Its Strong Fundamentals?

Most readers would already be aware that Nanjing Bestway Intelligent Control Technology's (SZSE:301195) stock increased significantly by 15% over the past week. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. In this article, we decided to focus on Nanjing Bestway Intelligent Control Technology'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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.

View our latest analysis for Nanjing Bestway Intelligent Control Technology

How To Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Nanjing Bestway Intelligent Control Technology is:

9.2% = CN¥208m ÷ CN¥2.3b (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¥0.09 in profit.

What Is The Relationship Between ROE And Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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.

Nanjing Bestway Intelligent Control Technology's Earnings Growth And 9.2% ROE

On the face of it, Nanjing Bestway Intelligent Control Technology's ROE is not much to talk about. Although a closer study shows that the company's ROE is higher than the industry average of 6.4% which we definitely can't overlook. Particularly, the substantial 21% net income growth seen by Nanjing Bestway Intelligent Control Technology over the past five years is impressive . Bear in mind, the company does have a moderately low ROE. It is just that the industry ROE is lower. So, there might well be other reasons for the earnings to grow. Such as- high earnings retention or the company belonging to a high growth industry.

Next, on comparing with the industry net income growth, we found that Nanjing Bestway Intelligent Control Technology's growth is quite high when compared to the industry average growth of 4.8% in the same period, which is great to see.

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). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is 301195 worth today? The intrinsic value infographic in our free research report helps visualize whether 301195 is currently mispriced by the market.

Is Nanjing Bestway Intelligent Control Technology Making Efficient Use Of Its Profits?

Nanjing Bestway Intelligent Control Technology's three-year median payout ratio is a pretty moderate 36%, meaning the company retains 64% of its income. So it seems that Nanjing Bestway Intelligent Control Technology is reinvesting efficiently in a way that it sees impressive growth in its earnings (discussed above) and pays a dividend that's well covered.

While Nanjing Bestway Intelligent Control Technology has seen growth in its earnings, it only recently started to pay a dividend. It is most likely that the company decided to impress new and existing shareholders with a dividend. Our latest analyst data shows that the future payout ratio of the company is expected to drop to 17% over the next three years. As a result, the expected drop in Nanjing Bestway Intelligent Control Technology's payout ratio explains the anticipated rise in the company's future ROE to 12%, over the same period.

Conclusion

In total, we are pretty happy with Nanjing Bestway Intelligent Control Technology's performance. In particular, it's great to see that the company has seen significant growth in its earnings backed by a respectable ROE and a high reinvestment rate. On studying current analyst estimates, we found that analysts expect the company to continue its recent growth streak. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

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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.