Shandong Boan Biotechnology Co., Ltd. (HKG:6955) Stock's Been Sliding But Fundamentals Look Decent: Will The Market Correct The Share Price In The Future?

Shandong Boan Biotechnology (HKG:6955) has had a rough three months with its share price down 27%. However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. Specifically, we decided to study Shandong Boan Biotechnology's ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Put another way, it reveals the company's success at turning shareholder investments into profits.

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How To 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 Shandong Boan Biotechnology is:

1.6% = CN¥32m ÷ CN¥2.0b (Based on the trailing twelve months to June 2025).

The 'return' is the amount earned after tax over the last twelve months. One way to conceptualize this is that for each HK$1 of shareholders' capital it has, the company made HK$0.02 in profit.

Check out our latest analysis for Shandong Boan Biotechnology

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. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. 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.

A Side By Side comparison of Shandong Boan Biotechnology's Earnings Growth And 1.6% ROE

It is quite clear that Shandong Boan Biotechnology's ROE is rather low. Even compared to the average industry ROE of 7.9%, the company's ROE is quite dismal. Despite this, surprisingly, Shandong Boan Biotechnology saw an exceptional 55% net income growth over the past five years. We believe that there might be other aspects that are positively influencing the company's earnings growth. Such as - high earnings retention or an efficient management in place.

We then performed a comparison between Shandong Boan Biotechnology's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 48% in the same 5-year period.

Earnings growth is an important metric to consider when valuing a stock. 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 Shandong Boan Biotechnology's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Shandong Boan Biotechnology Making Efficient Use Of Its Profits?

Shandong Boan Biotechnology doesn't pay any regular dividends currently which essentially means that it has been reinvesting all of its profits into the business. This definitely contributes to the high earnings growth number that we discussed above.

Summary

Overall, we feel that Shandong Boan Biotechnology 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. 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. To know the 2 risks we have identified for Shandong Boan Biotechnology visit our risks dashboard for free.

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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.