Is JG Environmental Technology Co.,Ltd.'s (GTSM:6723) Recent Performance Tethered To Its Attractive Financial Prospects?

JG Environmental TechnologyLtd's (GTSM:6723) stock up by 2.7% over the past three months. Since the market usually pay for a company’s long-term financial health, we decided to study the company’s fundamentals to see if they could be influencing the market. In this article, we decided to focus on JG Environmental TechnologyLtd's ROE.

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.

See our latest analysis for JG Environmental TechnologyLtd

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 JG Environmental TechnologyLtd is:

17% = NT$50m ÷ NT$303m (Based on the trailing twelve months to June 2020).

The 'return' is the profit over the last twelve months. That means that for every NT$1 worth of shareholders' equity, the company generated NT$0.17 in profit.

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. 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 JG Environmental TechnologyLtd's Earnings Growth And 17% ROE

To begin with, JG Environmental TechnologyLtd seems to have a respectable ROE. On comparing with the average industry ROE of 9.7% the company's ROE looks pretty remarkable. This probably laid the ground for JG Environmental TechnologyLtd's moderate 17% net income growth seen over the past five years.

We then compared JG Environmental TechnologyLtd's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 1.2% in the same 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 JG Environmental TechnologyLtd's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is JG Environmental TechnologyLtd Efficiently Re-investing Its Profits?

While JG Environmental TechnologyLtd has a three-year median payout ratio of 71% (which means it retains 29% of profits), the company has still seen a fair bit of earnings growth in the past, meaning that its high payout ratio hasn't hampered its ability to grow.

While JG Environmental TechnologyLtd has seen growth in its earnings, it only recently started to pay a dividend. It is most likely that the company decided to impress new and existing shareholders with a dividend.

Conclusion

In total, we are pretty happy with JG Environmental TechnologyLtd's performance. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. So far, we've only made a quick discussion around the company's earnings growth. You can do your own research on JG Environmental TechnologyLtd and see how it has performed in the past by looking at this FREE detailed graph of past earnings, revenue and cash flows.

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This article by Simply Wall St is general in nature. 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.
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