Is Biocytogen Pharmaceuticals (Beijing) Co., Ltd.'s (HKG:2315) Recent Stock Performance Influenced By Its Fundamentals In Any Way?

Most readers would already be aware that Biocytogen Pharmaceuticals (Beijing)'s (HKG:2315) stock increased significantly by 67% over the past three months. 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. In this article, we decided to focus on Biocytogen Pharmaceuticals (Beijing)'s ROE.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

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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 Biocytogen Pharmaceuticals (Beijing) is:

4.0% = CN¥34m ÷ CN¥839m (Based on the trailing twelve months to December 2024).

The 'return' is the income the business earned over the last year. Another way to think of that is that for every HK$1 worth of equity, the company was able to earn HK$0.04 in profit.

View our latest analysis for Biocytogen Pharmaceuticals (Beijing)

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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.

Biocytogen Pharmaceuticals (Beijing)'s Earnings Growth And 4.0% ROE

It is quite clear that Biocytogen Pharmaceuticals (Beijing)'s ROE is rather low. Even compared to the average industry ROE of 7.6%, the company's ROE is quite dismal. However, we we're pleasantly surprised to see that Biocytogen Pharmaceuticals (Beijing) grew its net income at a significant rate of 24% in the last five years. Therefore, there could be other reasons behind this growth. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

As a next step, we compared Biocytogen Pharmaceuticals (Beijing)'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 38% in the same period.

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). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Biocytogen Pharmaceuticals (Beijing) fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Biocytogen Pharmaceuticals (Beijing) Efficiently Re-investing Its Profits?

Biocytogen Pharmaceuticals (Beijing) doesn't pay any regular dividends to its shareholders, meaning that the company has been reinvesting all of its profits into the business. This is likely what's driving the high earnings growth number discussed above.

Summary

In total, it does look like Biocytogen Pharmaceuticals (Beijing) has some positive aspects to its business. Specifically, its fairly high earnings growth number, which no doubt was backed by the company's high earnings retention. Still, the low ROE means that all that reinvestment is not reaping a lot of benefit to the investors. 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 Biocytogen Pharmaceuticals (Beijing).

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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.