Yangtze Optical Fibre And Cable Joint Stock Limited Company's (HKG:6869) Stock On An Uptrend: Could Fundamentals Be Driving The Momentum?

Yangtze Optical Fibre And Cable Limited (HKG:6869) has had a great run on the share market with its stock up by a significant 140% over the last 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. Specifically, we decided to study Yangtze Optical Fibre And Cable Limited'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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

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How Is ROE Calculated?

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 Yangtze Optical Fibre And Cable Limited is:

3.9% = CN¥600m ÷ CN¥15b (Based on the trailing twelve months to June 2025).

The 'return' is the profit over the last twelve months. So, this means that for every HK$1 of its shareholder's investments, the company generates a profit of HK$0.04.

Check out our latest analysis for Yangtze Optical Fibre And Cable Limited

Why Is ROE Important For 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. 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.

Yangtze Optical Fibre And Cable Limited's Earnings Growth And 3.9% ROE

It is quite clear that Yangtze Optical Fibre And Cable Limited's ROE is rather low. Even when compared to the industry average of 6.7%, the ROE figure is pretty disappointing. However, the moderate 8.1% net income growth seen by Yangtze Optical Fibre And Cable Limited over the past five years is definitely a positive. We believe that there might be other aspects that are positively influencing the company's earnings 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 Yangtze Optical Fibre And Cable Limited's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 8.1% in the same period.

Earnings growth is an important metric to consider when valuing a stock. 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. What is 6869 worth today? The intrinsic value infographic in our free research report helps visualize whether 6869 is currently mispriced by the market.

Is Yangtze Optical Fibre And Cable Limited Using Its Retained Earnings Effectively?

Yangtze Optical Fibre And Cable Limited has a three-year median payout ratio of 30%, which implies that it retains the remaining 70% of its profits. This suggests that its dividend is well covered, and given the decent growth seen by the company, it looks like management is reinvesting its earnings efficiently.

Besides, Yangtze Optical Fibre And Cable Limited has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 30%. Still, forecasts suggest that Yangtze Optical Fibre And Cable Limited's future ROE will rise to 9.2% even though the the company's payout ratio is not expected to change by much.

Summary

On the whole, we do feel that Yangtze Optical Fibre And Cable Limited has some positive attributes. 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. With that said, the latest industry analyst forecasts reveal that the company's earnings are expected to accelerate. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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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.