Is Jiang Zhong Pharmaceutical Co.,Ltd's (SHSE:600750) Recent Stock Performance Influenced By Its Fundamentals In Any Way?

Simply Wall St · Nov 28, 2023 06:21

Jiang Zhong PharmaceuticalLtd (SHSE:600750) has had a great run on the share market with its stock up by a significant 10% over the last three months. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. Specifically, we decided to study Jiang Zhong PharmaceuticalLtd's ROE in this article.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Put another way, it reveals the company's success at turning shareholder investments into profits.

See our latest analysis for Jiang Zhong PharmaceuticalLtd

How To Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Jiang Zhong PharmaceuticalLtd is:

15% = CN¥731m ÷ CN¥4.7b (Based on the trailing twelve months to September 2023).

The 'return' is the income the business earned over the last year. So, this means that for every CN¥1 of its shareholder's investments, the company generates a profit of CN¥0.15.

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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.

Jiang Zhong PharmaceuticalLtd's Earnings Growth And 15% ROE

To start with, Jiang Zhong PharmaceuticalLtd's ROE looks acceptable. On comparing with the average industry ROE of 8.4% the company's ROE looks pretty remarkable. Probably as a result of this, Jiang Zhong PharmaceuticalLtd was able to see a decent growth of 7.4% over the last five years.

As a next step, we compared Jiang Zhong PharmaceuticalLtd's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 11% in the same period.

past-earnings-growth — SHSE:600750 Past Earnings Growth November 27th 2023

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). Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Jiang Zhong PharmaceuticalLtd's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Jiang Zhong PharmaceuticalLtd Efficiently Re-investing Its Profits?

The high three-year median payout ratio of 70% (or a retention ratio of 30%) for Jiang Zhong PharmaceuticalLtd suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Besides, Jiang Zhong PharmaceuticalLtd has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders.

Conclusion

In total, it does look like Jiang Zhong PharmaceuticalLtd has some positive aspects to its business. Its earnings have grown respectably as we saw earlier, which was likely due to the company reinvesting its earnings at a pretty high rate of return. However, given the high ROE, we do think that the company is reinvesting a small portion of its profits. This could likely be preventing the company from growing to its full extent. Up till now, we've only made a short study of the company's growth data. So it may be worth checking this free detailed graph of Jiang Zhong PharmaceuticalLtd's past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.

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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.