Is Xinjiang East Universe Gas Co.Ltd.'s (SHSE:603706) Recent Stock Performance Influenced By Its Fundamentals In Any Way?

Xinjiang East Universe GasLtd (SHSE:603706) has had a great run on the share market with its stock up by a significant 19% over the last week. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. Specifically, we decided to study Xinjiang East Universe GasLtd's ROE in this article.

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.

Check out our latest analysis for Xinjiang East Universe GasLtd

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 Xinjiang East Universe GasLtd is:

13% = CN¥228m ÷ CN¥1.7b (Based on the trailing twelve months to June 2024).

The 'return' is the income the business earned over the last year. That means that for every CN¥1 worth of shareholders' equity, the company generated CN¥0.13 in profit.

What Has ROE Got To Do With Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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.

Xinjiang East Universe GasLtd's Earnings Growth And 13% ROE

To begin with, Xinjiang East Universe GasLtd seems to have a respectable ROE. Especially when compared to the industry average of 9.9% the company's ROE looks pretty impressive. This probably laid the ground for Xinjiang East Universe GasLtd's moderate 13% net income growth seen over the past five years.

We then compared Xinjiang East Universe GasLtd's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 9.5% in the same 5-year period.

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Xinjiang East Universe GasLtd's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Xinjiang East Universe GasLtd Using Its Retained Earnings Effectively?

The high three-year median payout ratio of 92% (or a retention ratio of 8.2%) for Xinjiang East Universe GasLtd suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Moreover, Xinjiang East Universe GasLtd is determined to keep sharing its profits with shareholders which we infer from its long history of five years of paying a dividend.

Conclusion

Overall, we feel that Xinjiang East Universe GasLtd certainly does have some positive factors to consider. Especially the growth in earnings which was backed by an impressive ROE. Still, the high ROE could have been even more beneficial to investors had the company been reinvesting more of its profits. As highlighted earlier, the current reinvestment rate appears to be negligible. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. To gain further insights into Xinjiang East Universe GasLtd's past profit growth, check out this visualization of past earnings, revenue and cash flows.

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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.