Is Shaanxi Jinye Science Technology and Education Group Co.,Ltd’s (SZSE:000812) Recent Stock Performance Influenced By Its Fundamentals In Any Way?

Shaanxi Jinye Science Technology and Education GroupLtd (SZSE:000812) has had a great run on the share market with its stock up by a significant 50% over the last three months. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company’s key financial indicators today to determine if they have any role to play in the recent price movement. Specifically, we decided to study Shaanxi Jinye Science Technology and Education GroupLtd’s ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

See our latest analysis for Shaanxi Jinye Science Technology and Education GroupLtd

How Do You Calculate Return On Equity?

ROE 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 Shaanxi Jinye Science Technology and Education GroupLtd is:

3.4% = CN¥64m ÷ CN¥1.9b (Based on the trailing twelve months to September 2024).

The ‘return’ is the profit over the last twelve months. So, this means that for every CN¥1 of its shareholder’s investments, the company generates a profit of CN¥0.03.

What Has ROE Got To Do With Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company’s future earnings. Based on how much of its profits the company chooses to reinvest or “retain”, we are then able to evaluate a company’s future ability to generate profits. 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.

Shaanxi Jinye Science Technology and Education GroupLtd’s Earnings Growth And 3.4% ROE

It is hard to argue that Shaanxi Jinye Science Technology and Education GroupLtd’s ROE is much good in and of itself. Even when compared to the industry average of 5.1%, the ROE figure is pretty disappointing. However, we we’re pleasantly surprised to see that Shaanxi Jinye Science Technology and Education GroupLtd grew its net income at a significant rate of 20% in the last five years. Therefore, there could be other reasons behind this 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 Shaanxi Jinye Science Technology and Education GroupLtd’s net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 1.6%.

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. If you’re wondering about Shaanxi Jinye Science Technology and Education GroupLtd’s’s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Shaanxi Jinye Science Technology and Education GroupLtd Efficiently Re-investing Its Profits?

Shaanxi Jinye Science Technology and Education GroupLtd’s three-year median payout ratio is a pretty moderate 30%, meaning the company retains 70% of its income. By the looks of it, the dividend is well covered and Shaanxi Jinye Science Technology and Education GroupLtd is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Additionally, Shaanxi Jinye Science Technology and Education GroupLtd has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders.

Summary

Overall, we feel that Shaanxi Jinye Science Technology and Education GroupLtd certainly does have some positive factors to consider. With a high rate of reinvestment, albeit at a low ROE, the company has managed to see a considerable growth in its earnings. While we won’t completely dismiss the company, what we would do, is try to ascertain how risky the business is to make a more informed decision around the company. You can see the 1 risk we have identified for Shaanxi Jinye Science Technology and Education GroupLtd by visiting our risks dashboard for free on our platform here.

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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.