Beijing Bewinner Communications Co., Ltd.'s (SZSE:002148) Stock On An Uptrend: Could Fundamentals Be Driving The Momentum?

Beijing Bewinner Communications' (SZSE:002148) stock is up by a considerable 37% 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. In this article, we decided to focus on Beijing Bewinner Communications' 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. Put another way, it reveals the company's success at turning shareholder investments into profits.

See our latest analysis for Beijing Bewinner Communications

How Do You 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 Beijing Bewinner Communications is:

2.1% = CN¥26m ÷ CN¥1.2b (Based on the trailing twelve months to September 2024).

The 'return' is the profit over the last twelve months. That means that for every CN¥1 worth of shareholders' equity, the company generated CN¥0.02 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. 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 all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

Beijing Bewinner Communications' Earnings Growth And 2.1% ROE

As you can see, Beijing Bewinner Communications' ROE looks pretty weak. Even when compared to the industry average of 12%, the ROE figure is pretty disappointing. In spite of this, Beijing Bewinner Communications was able to grow its net income considerably, at a rate of 27% in the last five years. We believe that there might 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 Beijing Bewinner Communications' 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 5.6%.

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). This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Beijing Bewinner Communications''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Beijing Bewinner Communications Efficiently Re-investing Its Profits?

The three-year median payout ratio for Beijing Bewinner Communications is 38%, which is moderately low. The company is retaining the remaining 63%. By the looks of it, the dividend is well covered and Beijing Bewinner Communications is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Additionally, Beijing Bewinner Communications has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders.

Conclusion

In total, it does look like Beijing Bewinner Communications has some positive aspects to its business. With a high rate of reinvestment, albeit at a low ROE, the company has managed to see a considerable growth in its earnings. 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 will have the 1 risk we have identified for Beijing Bewinner Communications.

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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.