SIFI CJ LOGISTIC SA's (BVB:CACU) Financials Are Too Obscure To Link With Current Share Price Momentum: What's In Store For the Stock?

SIFI CJ LOGISTIC (BVB:CACU) has had a great run on the share market with its stock up by a significant 13% over the last week. But the company's key financial indicators appear to be differing across the board and that makes us question whether or not the company's current share price momentum can be maintained. Particularly, we will be paying attention to SIFI CJ LOGISTIC's ROE today.

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?

The formula for return on equity is:

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 profit over the last twelve months. That means that for every RON1 worth of shareholders' equity, the company generated RON0.02 in profit.

Check out our latest analysis for SIFI CJ LOGISTIC

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. 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 SIFI CJ LOGISTIC's Earnings Growth And 1.9% ROE

It is quite clear that SIFI CJ LOGISTIC's ROE is rather low. Even when compared to the industry average of 4.5%, 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 believe that there might be other aspects that are positively influencing the company's earnings growth. 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 5.3% in the same period, which is great to see.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if SIFI CJ LOGISTIC is trading on a high P/E or a low P/E, relative to its industry.

Is SIFI CJ LOGISTIC Using Its Retained Earnings Effectively?

SIFI CJ LOGISTIC's high three-year median payout ratio of 336% suggests that the company is paying out more to its shareholders than what it is making. Still the company's earnings have grown respectably. That being said, the high payout ratio could be worth keeping an eye on in case the company is unable to keep up its current growth momentum. To know the 3 risks we have identified for SIFI CJ LOGISTIC visit our risks dashboard for free.

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

Overall, we have mixed feelings about SIFI CJ LOGISTIC. While no doubt its earnings growth is pretty substantial, its ROE and earnings retention is quite poor. So while the company has managed to grow its earnings in spite of this, we are unconvinced if this growth could extend, especially during troubled times. 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.

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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.