Is SIFI CJ LOGISTIC SA's (BVB:CACU) Stock Price Struggling As A Result Of Its Mixed Financials?

It is hard to get excited after looking at SIFI CJ LOGISTIC's (BVB:CACU) recent performance, when its stock has declined 14% over the past week. We, however decided to study the company's financials to determine if they have got anything to do with the price decline. Stock prices are usually driven by a company’s financial performance over the long term, and therefore we decided to pay more attention to the company's financial performance. Specifically, we decided to study SIFI CJ LOGISTIC'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. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

Our free stock report includes 3 warning signs investors should be aware of before investing in SIFI CJ LOGISTIC. Read for free now.

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 SIFI CJ LOGISTIC is:

1.9% = RON475k ÷ RON24m (Based on the trailing twelve months to December 2024).

The 'return' is the yearly profit. So, this means that for every RON1 of its shareholder's investments, the company generates a profit of RON0.02.

Check out our latest analysis for SIFI CJ LOGISTIC

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.

SIFI CJ LOGISTIC's Earnings Growth And 1.9% ROE

As you can see, SIFI CJ LOGISTIC's ROE looks pretty weak. Even when compared to the industry average of 3.6%, the ROE figure is pretty disappointing. Although, we can see that SIFI CJ LOGISTIC saw a modest net income growth of 8.2% over the past five years. We reckon that there could be other factors at play here. For instance, the company has a low payout ratio or is being managed efficiently.

Next, on comparing with the industry net income growth, we found that SIFI CJ LOGISTIC's growth is quite high when compared to the industry average growth of 5.5% in the same period, which is great to see.

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). Doing so will help them establish if the stock's future looks promising or ominous. Is SIFI CJ LOGISTIC fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is SIFI CJ LOGISTIC Efficiently Re-investing Its Profits?

SIFI CJ LOGISTIC's high three-year median payout ratio of 372% suggests that the company is paying out more to its shareholders than what it is making. However, this hasn't really hampered its ability to grow as we saw earlier. Although, the high payout ratio is certainly something we would keep an eye on if the company is not able to keep up its growth, or if business deteriorates. You can see the 3 risks we have identified for SIFI CJ LOGISTIC by visiting our risks dashboard for free on our platform here.

While SIFI CJ LOGISTIC has been growing its earnings, it only recently started to pay dividends which likely means that the company decided to impress new and existing shareholders with a dividend.

Summary

On the whole, we feel that the performance shown by SIFI CJ LOGISTIC can be open to many interpretations. While the company has posted impressive earnings growth, its poor ROE and low earnings retention makes us doubtful if that growth could continue, if by any chance the business is faced with any sort of risk. Up till now, we've only made a short study of the company's growth data. To gain further insights into SIFI CJ LOGISTIC's past profit growth, check out this visualization of past earnings, revenue and cash flows.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.