Do Fundamentals Have Any Role To Play In Driving COSCO SHIPPING Specialized Carriers Co.,Ltd.'s (SHSE:600428) Stock Up Recently?

Most readers would already know that COSCO SHIPPING Specialized CarriersLtd's (SHSE:600428) stock increased by 8.0% over the past three months. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to investigate if the company's decent financials had a hand to play in the recent price move. Particularly, we will be paying attention to COSCO SHIPPING Specialized CarriersLtd's ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

View our latest analysis for COSCO SHIPPING Specialized CarriersLtd

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 COSCO SHIPPING Specialized CarriersLtd is:

8.6% = CN¥1.0b ÷ CN¥12b (Based on the trailing twelve months to March 2024).

The 'return' is the yearly profit. One way to conceptualize this is that for each CN¥1 of shareholders' capital it has, the company made CN¥0.09 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. 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 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.

COSCO SHIPPING Specialized CarriersLtd's Earnings Growth And 8.6% ROE

At first glance, COSCO SHIPPING Specialized CarriersLtd's ROE doesn't look very promising. However, its ROE is similar to the industry average of 8.6%, so we won't completely dismiss the company. Particularly, the exceptional 52% net income growth seen by COSCO SHIPPING Specialized CarriersLtd over the past five years is pretty remarkable. Taking into consideration that the ROE is not particularly high, we reckon that there could also be other factors at play which could be influencing the company's growth. Such as - high earnings retention or an efficient management in place.

As a next step, we compared COSCO SHIPPING Specialized CarriersLtd'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 16%.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. If you're wondering about COSCO SHIPPING Specialized CarriersLtd's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is COSCO SHIPPING Specialized CarriersLtd Using Its Retained Earnings Effectively?

The three-year median payout ratio for COSCO SHIPPING Specialized CarriersLtd is 30%, which is moderately low. The company is retaining the remaining 70%. So it seems that COSCO SHIPPING Specialized CarriersLtd is reinvesting efficiently in a way that it sees impressive growth in its earnings (discussed above) and pays a dividend that's well covered.

Besides, COSCO SHIPPING Specialized CarriersLtd has been paying dividends over a period of nine years. This shows that the company is committed to sharing profits with its shareholders.

Summary

Overall, we feel that COSCO SHIPPING Specialized CarriersLtd certainly does have some positive factors to consider. Despite its low rate of return, the fact that the company reinvests a very high portion of its profits into its business, no doubt contributed to its high earnings growth. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page 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.

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